Question

The standard cost of Product B manufactured by Pharrell Company includes 3.2 units of direct materials at $6.6 per unit. During June, 27,000 units of direct materials are purchased at a cost of $6.45 per unit, and 27,000 units of direct materials are used to produce 8,300 units of Product B. (a) Compute the total materials variance and the price and quantity variances. (b) Compute the total materials variance and the price and quantity variances, assuming the purchase price is $6.70 and the quantity purchased and used is 27,000 units.

Answer 1

We have,

(a) Material price variance = (Standard Price - Actual Price)
`*` Actual Quantity

Material Price Variance = ($6.6 - $6.45)
`*` 27,000 = $4,050 Favorable

Material Quantity Variance = (Standard Quantity - Actual Quantity)
`*` Standard Price

Here, standard quantity = 3.2 units of raw material for each unit of output

Therefore, for 8,300 units of output = 8,300
`*` 3.2 = 26,560

Material Quantity Variance = (26,560 - 27,000)
`*` $6.6 =

- $2,904 Unfavorable

Total Material Variance = Material price variance + Material Quantity Variance

= $4,050 - $2,904 = $1,146 Favorable

(b) In case, actual price = $6.70 and actual quantity being same i.e. 27,000 units then

Material Price Variance = ($6.6 - $6.70)
`*` 27,000 =

- $2,700 Unfavorable

Material Quantity Variance = (26,560 - 27,000)
`*` $6.6 =

- $2,904 Unfavorable

Total Material Variance = Material price variance + Material Quantity Variance

= - $2,700 - $2,904 = - $5,604 Unfavorable