Question

Exercise 8-12B Responsibility for materials price variance

Wayne Pittman Inc. makes ice cream that it sells in 5-gallon containers to retail ice cream parlors. During Year 2, the company planned to make 100,000 containers of ice cream. It actually produced 97,000 containers. The actual and standard quantity and cost of sugar per container follow.

Standard Actual Quantity of materials per container Price per pound Cost per container 2 pounds x $1.16 $2.32 2.1 pounds x $1.20 $2.52

Required

1. Determine the materials price variance and indicate whether the variance is favorable (F) or unfavorable (U).

2. Determine the materials usage variance and indicate whether the variance is favorable (F) or unfavorable (U).

3. Explain how the production manager could have been responsible for the price variance.

Answer 1

Materials Price Variance = (Actual Price - Standard Price)Actual quantity

=(1.20 - 1.16)97,000 x 2.1

=8,148 (Unfavorable)

materials usage variance = (Actual quantity - Standard quantity) Standard Price

=(97,000 x 2.1 - 97,000 x 2)1.16

=(203,700 - 194,000)1.16

=11,252 (Unfavorable)

If Production Manager Uses the quantity more than the standard quantity then he will also be held Responsbile for the materials price variance