Question

Problem 17-41 (Algo) Variable Cost Variances: Materials Purchased and Used Are Not Equal (LO 17-2, 7)

Griffen Company makes pipe using metal. The company uses a standard costing system. Variable overhead is allocated on the basis of direct material usage (pounds). Overhead is allocated to units based on expected production of 14,000 units. Griffen maintains a materials inventory, so the amount of material used is not necessarily the same as the amount of material purchased in any one month.

 

The standard cost sheet for a unit of pipe follows.

 

Direct material	9	pounds	@	$	8		$	72.00
Direct labor	5	hours	@	$	28			140.00
Variable overhead	9	pounds	@	$	5			45.00
Fixed overhead								23.00
							$	280.00

 

August financial results show that the average purchase price of metal was $8.30 per pound. The purchase price variance $33,900 unfavorable. The variable overhead efficiency variance was 10,000 unfavorable. Good output produced totaled 17,000 units.

 

Required:

a. How many pounds of metal were purchased in August? (Do not round intermediate calculations.)

b. What was the direct material efficiency variance in August? (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

c. How many pounds of metal were used in August? (Do not round intermediate calculations.)

Answer 1

A) 8- 8.30= -0.3     33,900/ -0.3= 133,000 metals purchased

B&C) 17,000* 8= 136,000

17,000* 9=  153,000

10,000 U/ 45= 222.2222222222

222.2222222222* 72(8*9 DM)= 15,999.999 or B) answer: 16,000 U  efficiency variance

10,000 U/ 5 VOH= 2,000

2,000+ 153,000= C) answer: 155,000 metals used  

Answer 2

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