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Hart Company made 3,060 bookshelves using 22,060 board feet of wood costing $273,544. The company's direct materials standards for one bookshelf are 8 board feet of wood at $12.30 per board foot.
AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

(1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
(2) Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?

Answer 1

a) Actual Cost Standard Cost SP AQ AP SP AQ SQ X x $ 12.30 $ $ 24,480 22,060 12.40 22,060 12.30 X X x $271,338 $301,104 273,544 $ 2,206 29,766 2,206 Unfavorable Direct Material Price Variance 29,766 Favorable 27,560 Favorable Direct Material Quantity Variance $ Direct Material Cost Variance Notes: (273,544/22,060) $ Actual Price per board feet 12.40 Actual bookshelf produced 3,060 Standard material required per unit 8 board feet Standard Quantity required (3,060 x 8) 24,480 (AQx AP) (AQx SP) Direct material price variance (AQx SP) Minus Minus (SQx SP) Direct Material Quantity Variance X Direct Material Quantity Variance b) Which direct materials variances will Hart investigate Further? Reason: As the direct material quantity variance was more than the 5% of the actual direct material cost. (2,206/273,544) (29,766/273,544) Direct Material Price variance 0.81% Direct material quantity variance 10.88%