Part B (30 Points) The following standards have been established for a raw mater
ID: 2436713 • Letter: P
Question
Part B (30 Points) The following standards have been established for a raw material used to make product 084: Standard quantity of the material per unit of output 7.10 meters S 18.30 per meter The following data pertain to actual operations concerning the product for the last month 3,400 meters Actual material purchased Actual cost of material purchased Actual material used in production Actual output S 64,090 3,400 meters 500 units of product 084 Required: 3. Using the template provided below, calculate the materials price variance, materials quantity variance and spending variance for the month? Make sure to identify the variances as favorable (F) or unfavorable Actual Quantity of Input, at Actual Price Actual Quantity of Input, at Standard Price Standard Quantity Allowed for Output, at Standard Price (AQ x AP) (AQ × SP) Materials price variance, Materials quantity variance, Spending Variance, 4. What does the above variance analysis tell us about the performance of the: a) Purchasing manager: b) Production managerExplanation / Answer
3. Calculation of Variances( see working notes)
Actual Quantity
Of Input at Actual
Price(AQ* AP)
Actual Quantity
Of Input at
Standard Price
(AQ* SP)
Standard Quantity
Allowed for output
At Standard Price
(SQ* SP)
$ 64090
$ 62,220
$ 64965
Material Price Material quantity
Variance Variance
$1870 U $ 2745 F
Material Spending Variance
$ 875 F
Working Notes:
Material Price Variance=(Standard price/unit-Actual price/unit)*Actual Quantity Consumed
=(18.30/meter-18.85/meter)*3400meters= $1870 U
Material Quantity Variance=(Standard Quantity-Actual Quantity)*Standard Price per unit
=( 3550 meters-3400 meters)*18.30/meter=$ 2745 F
4(a)The above variance tells us that the purchase manager is responsible for the price of raw materials to be paid for the purchases at the time of purchase for the purpose of production and in this case it shows that the purchase manager has paid a higher price for the materials than what should have been paid.
(b) The above variance tells us that the production manager is responsible for the amount of raw material used and this responsibility is exercised by the production manager when the materials are actually used in the production process. In this case the production manager has responsibily and carefully used the raw materials in the production process and therefore the variance is favourable though the production manager has no control on the cost of the material and the quality of the materials used in the production.
Actual Quantity
Of Input at Actual
Price(AQ* AP)
Actual Quantity
Of Input at
Standard Price
(AQ* SP)
Standard Quantity
Allowed for output
At Standard Price
(SQ* SP)
$ 64090
$ 62,220
$ 64965
Material Price Material quantity
Variance Variance
$1870 U $ 2745 F
Material Spending Variance
$ 875 F