Question

EXERCISE 3: Flexible budget variances can be further analyzed to determine whether the variance was due to an unexpected fluctuation in price or usage. Use the following data to determine a price and usage variance for Direct Materials: Budget (Std) Actual Price-Direct Materials per gallon $1.475 $2.00 10 ga lons 8 galans Materials Used per unit (barrel) DM Cost per unit (barrel) X $14.75 $16.00 How many gallons per unit did Bettis originally plan for in its budget (standard)? 8 gallons (above) Bettis can multiply this number by the actual units to derive how many gallons it should (expects) to use for the actual quantity produced and sold. It can then compare those numbers to actual results: 21Page Planned for Units Produced Actual 8.200 Actual Production Volume Materials Used per Unit (barrel DM Total Quantity 8.200 10 gallons 8 galans 65.600 gallons 82,000 gallons So, Bettis expected to use a total of 65,600 gallons to produce 8,200 units (barrels) We call this the "Standard Quantity WARNING: This number is often miscalculated. The definition of "Standard Quantity is: Standard Quantity The amount we SHOULD have used for the ACTUAL quantity produced. Use the columnar approach to solve for the price and usage variance and interpret the variances as Favorable- (F) or Unfavorable (U). BE SURE TO USE THE DEFINITION ABOVE WHEN CALCULATING STANDARDD QUANTITY IN THE RIGHT M0ST COLUMN. Flexible Budget Direct Materials Actual Costs Actual Qty Actual Qty Standard Cty. X Standard X Standard X Actual Price Price per gallona Price per gallon per gallon gallons gallons gallons Xs per per per gallon galon galon Price Usage Variance Variance $ Flexible Budget Variance

Answer 1

           

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NOTE 1

since, actual price is lower than standard price for materials therefore, price variance is favourable.

Note 2

standard quantity is the quantity we should have used for the actual quantity produced.

actual quantity produced is 8,200 units

standard quantity required to produce one unit = 8 gallons

so, standard quantity required to produce 8,200 units = 8,200 X 8

                                                                                     = 65,600 gallons