favorable or unfavorable

Question

Use the following to answer questions 1-2:
Luc, Inc., manufactures a single product. The company uses a standard cost system and has
established the following direct material standards for one unit of product:

 

During March, the following activity was recorded by the company:
- The company produced 4,000 units during the month, which was 500 less than budgeted.
- A total of 10,000 pounds of material were purchased at a cost of $38,000.
- There was no beginning inventory of materials on hand to start the month; at the end of the
month, 3,000 pounds of material remained in the warehouse.

 

1. The materials price variance for March is (indicate amount and if variance is favorable
or unfavorable) : _______________________

 

2. The materials quantity variance for March is (indicate amount and if variance is
favorable or unfavorable) : ________________

Answer 1

Standards: 

Standard Output: 4500 units

Standard Material for Standard Output: 10000 pounds

Standard Price: Not given so assumed to be same as Actual Price

 

Actual

Actual Output: 4000 units

Actual Material used for Actual Output: 7000 pounds [10k-3k in inventory]

Actual Price: 38k/10k = 3.8$ per pound

 

Variances: Price variance is nil as Standard price is not given. Check if you have written the question correctly

Material Quantity variance: 7000 - Standard Material for ACTUAL OUTPUT ie. 10000/4500*4000 ie 8889= 1889 *3.8 =7178 favorable. 

Answer 2

1. The materials price variance for March is (indicate amount and if variance is favorable
or unfavorable) : __Zero price variance, I assumed budgeted material cost per pound= $3.8, same as actual

2. The materials quantity variance for March is (indicate amount and if variance is
favorable or unfavorable) : __Volume variance is 500 units less. 500X 1.75pound Material per unit X $3.8 per pound= $3325 favorable. The reason the material cost was less because production was less by 500 units, volume related variance

 

Detail notes:

- Budgeted units 4500-actual units produced 4000= 500 units less

- Cost of material per unit is= $38,000/10,000pounds= $3.8 per pound

- Units used in production = Purchases 10,000 -3000 ending Inv.= 7000 pounds

- Pounds per units produced= 7000/4000 units= 1.75 pounds per unit produced