Question

Help with question 1. Materials price variance please!!

Materials Varlances Manzana Company produces apple juice sold in gallons. Recently, the company adopted the following material standard for one gallon of its apple juice Direct materials 128 oz. @ $0.05 =丰6.40 During the first week of operation, the company experienced the following results: a. Gallon units produced: 20,000 . Ounces of materials purchased and used: 2,650,000 ounces at $0.045. C. No beginning or ending inventories of raw materials. Required Note: Enter favorable values as negative numbers. Enter unfavorable values as positive numbers. 1. Compute the materials price variance. 13,250X Favorable 2. Compute the materials usage variance. 4,500 Unfavorablev 3. During the second week, the materials usage variance was $4,000 unfavorable and the materials price variance was $20,000 unfavorable. The company purchased and used 2,000,000 ounces of material during this week. How many gallons of juice were produced? 15,000 gallons What was the actual price paid per ounce of materials? Round your answer to the nearest cent. 0.06 per ounce

Answer 1

General guidance

Concepts and reason

Standard costing: It is defined as a method of costing that used to locate the differences between the actual costs incurred for the production of goods and the estimated costs that should have been incurred for those goods produced.

Variance analysis: It refers to the analysis of the comparison of the estimated costs with the actual costs.

Standard cost: A standard cost is the estimated cost of production based on both historical and planned data under normal conditions of operations. It is also known as budgeted cost.

Efficiency variance for manufacturing overhead: It refers to the difference between the actual direct-labor hours worked with the budgeted direct-labor hours which is then applied to the budgeted variable manufacturing overhead per hour.

Unfavorable variance: It occurs when the actual cost is more than the budgeted cost. It is denoted as U.

Favorable variance: It occurs when the actual cost is less than the budgeted cost. It is denoted as F.

Fundamentals

Direct materials: Direct materials are the raw materials that are directly associated with the production of the goods in the factory. Direct material per unit is the cost of direct material incurred to produce one unit of product.

Direct material variance is a measure that determines the difference between the estimated direct material and the actual direct material used.

Materials price variance: The change in the standard price stated and the actual price paid is referred to as material price variance. The following formula is used for calculating price variance.

${\\rm{Materials price variance = }}\\left( {{\\rm{Standard price }} - {\\rm{ Actual price}}} \\right){\\rm{ }} \\times {\\rm{ Actual quantity}}$

Material usage variance: The changes between the standard cost of standard quantity of materials for actual output and the standard cost of the actual material used. The following formula is used for calculating material usage variance.

${\\rm{Material usage variance = }}\\left( {{\\rm{Standard quantity }} - {\\rm{ Actual quantity}}} \\right){\\rm{ }} \\times {\\rm{ Standard Price}}$

Step-by-step

Step 1 of 2

1)

Calculate gallons of juice produced.

$\\begin{array}{c}\\\\{\\rm{Gallons of juice produced = }}\\frac{{{\\rm{Standard quantity}}}}{{{\\rm{Direct materials}}}}{\\rm{ }}\\\\\\\\{\\rm{ = }}\\frac{{{\\rm{1,920,000}}}}{{{\\rm{128}}}}{\\rm{ }}\\\\\\\\{\\rm{ = 15,000 gallons}}\\\\\\end{array}$

Therefore, the gallons of juice produced are 15,000 gallons.

Working note:

Calculate standard quantity.

$\\begin{array}{c}\\\\{\\rm{Material usage variance = Standard Price }} \\times {\\rm{ }}\\left( {{\\rm{Standard quantity }} - {\\rm{ Actual quantity}}} \\right)\\\\\\\\ - \\$ {\\rm{4,000 = \\$ 0}}{\\rm{.05}}\\; \\times \\;\\left( {{\\rm{Standard quantity }} - \\;{\\rm{2,000,000}}} \\right){\\rm{ }}\\\\\\\\\\frac{{ - {\\rm{\\$ 4,000}}}}{{{\\rm{\\$ 0}}{\\rm{.05}}}}{\\rm{ = \\;}}\\left( {{\\rm{Standard quantity }} - \\;{\\rm{2,000,000}}} \\right)\\\\\\\\ - 80,000 = \\;\\left( {{\\rm{Standard quantity }} - \\;{\\rm{2,000,000}}} \\right)\\\\\\\\{\\rm{Standard quantity = 2,000,000 }} - {\\rm{ 80,000 }}\\\\\\\\{\\rm{Standard quantity}}\\;{\\rm{ = 1,920,000}}\\\\\\end{array}$

Therefore, the standard quantity is 1,920,000.

Part 1

Gallons of juice produced are 15,000 gallons.

Explanation | Common mistakes | Hint for next step

It is given that the materials usage variance is $4,000 unfavorable, standard price is $0.05 and actual quantity is 2,000,000 ounces. These variables put into the materials usage variance, standard quantity will get. So, standard quantity is 1,920,000 ounces. It is given that the direct materials are 128. Gallons of juice produced are calculated by dividing standard quantity by direct materials. Hence, the gallons of juice produced are 15,000 gallons.

Step 2 of 2

2)

Calculate actual price paid per ounce of materials.

$\\begin{array}{c}\\\\{\\rm{Material price variance = Actual quantity }} \\times {\\rm{ }}\\left( {{\\rm{Standard price }} - \\;{\\rm{Actual price}}} \\right)\\\\\\\\ - {\\rm{\\$ 20,000 = 2,000,000 }} \\times {\\rm{ }}\\left( {{\\rm{\\$ 0}}{\\rm{.05 }} - \\;{\\rm{Actual price}}} \\right){\\rm{ }}\\\\\\\\\\frac{{ - {\\rm{\\$ 20,000}}}}{{{\\rm{2,000,000}}}}{\\rm{ = }}\\left( {{\\rm{\\$ 0}}{\\rm{.05 }} - \\;{\\rm{Actual price}}} \\right){\\rm{ }}\\\\\\\\ - {\\rm{0}}{\\rm{.01 = }}\\left( {{\\rm{\\$ 0}}{\\rm{.05 }} - \\;{\\rm{Actual price}}} \\right){\\rm{ }}\\\\\\\\{\\rm{Actual price = \\$ 0}}{\\rm{.05 + \\$ 0}}{\\rm{.01 }}\\\\\\\\{\\rm{ = \\$ 0}}{\\rm{.06}}\\\\\\end{array}$

Therefore, the actual price paid per ounce of materials is $0.06.

Part 2

Actual price paid per ounce of materials is $0.06.

It is given that the materials price variance is $20,000 unfavorable, actual quantity is 2,000,000 and standard price is $0.05. These variables are put into the materials price variance, actual price paid per ounce of materials will get. Hence, the actual price paid per ounce of materials is $0.06.

Answer

Part 1

Gallons of juice produced are 15,000 gallons.

Part 2

Actual price paid per ounce of materials is $0.06.

Answer only

Part 1

Gallons of juice produced are 15,000 gallons.

Part 2

Actual price paid per ounce of materials is $0.06.