Question

Exercise 10-1 Direct Materials Variances [LO10-1]

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 4,000 helmets, using 2,920 kilograms of plastic. The plastic cost the company $19,272.

According to the standard cost card, each helmet should require 0.64 kilograms of plastic, at a cost of $7.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 4,000 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 4,000 helmets?

3. What is the materials spending variance?

4. What is the materials price variance and the materials quantity variance?

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Answer 1

Solution

Standard Quantity of kilogram allowed	2560
Standard cost allowed for actual output	$ 17,920
Material spending variance	$        1,352.00	Unfavourable-U
Material price variance	$        1,024.00	Favourable-F
Material quantity variance	$        2,520.00	Unfavourable-U

Working

Actual DATA for		4000	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	2920	$       6.60	$          19,272.00

.

Standard DATA for		4000	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 0.64KG x 4000 Units)=2560KG	$                   7.00	$            17,920.00

.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    7.00	-	$                     6.60	)	x	2560
	1024
	Variance		$             1,024.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	2560	-	2920	)	x	$              7.00
	-2520
	Variance		$             2,520.00			Unfavourable-U
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         17,920.00	-	$           19,272.00	)
	-1352
	Variance		$             1,352.00			Unfavourable-U