Question

CenterWare is a manufacturer of large flower pots for urban settings. The company has these​ standards:

Requirements

1. Compute the direct material price variance and the direct material quantity variance.

2. Who is generally responsible for each​ variance?

3. Interpret the variances.

Direct materials (resin): 10 pounds per pot at a cost of $4.00 per pound

Direct labor: 3.0 hours at a cost of $14.00 per hour

Standard variable manufacturing overhead rate: $5.00 per direct labor hour

Budgeted fixed manufacturing overhead: $29,500

Standard fixed MOH rate: $7.00 per direct labor hour (DLH)

CenterWare allocated fixed manufacturing overhead to production based on standard direct labor hours. Last​ month, the company reported the following actual results for the production of

1,500 flower​ pots:

Direct materials. . . . . . . . . . . . . . . . . . . . .	Purchased 16,750 pounds at a cost of
	$4.20 per pound; used 16,050 pounds to
	produce 1,500 pots
Direct labor. . . . . . . . . . . . . . . . . . . . . . . .	Worked 3.4 hours per flower pot (5,100
	total DLH) at a cost of $13.00 per hour
Actual variable manufacturing overhead. . . . .	$5.40 per direct labor hour for total
	actual variable manufacturing overhead
	of $27,540
Actual fixed manufacturing overhead. . . . . . .	$29,300
Standard fixed manufacturing overhead
allocated based on actual production. . . . . . .	$31,500

Answer 1

Material Price Variance = Actual pounds used x (Standard Price - Actual Price) Actual quantity used (pounds) 16,050 Standard price per pound $4.00 Actual price per pound $4.20 Material Price Variance $3,210 [16050 pounds x ($40 - $4.20)] Material Quantity Variance = (Standard pounds required - Actual pounds used) x Standard Price per pound Standard pounds required 15,000 (1,500 flower pots x 10 pounds] Actual quantity used (pounds) 16,050 Standard price per pound $4.00 Material Quantity Variance $4,200 [(15000 - 16050) pounds x $40]

Persons generally responsible for each material variance: Purchase manager is generally responsible for material price variance because he must collect and verify quotes from more than one vendors for the quality of materials used in firm's production before placing order for purchasing materials with respect to price per punit of material. Production manager is generally responsible for material quantity variance because it is the responsibility of a production manager to frame, implement and supervise effective production processes in such a way that materials once feeded to production department are effectively handled at all levels to produce desired production output without much material wastages. 3) Interpretation of results: As for as material price variance is concerned, it is unfavorable because actual price per pound is higher than standard price per pound budgeted already. As for as matrial efficiency variance is concerned, it is unfavorable becuase actual quantity of materials used is more than the standard quantity required for actual flower pots produced.