Suppose in making the 10 Wolverine Wigwams, we had the following actual costs an
ID: 2449296 • Letter: S
Question
Suppose in making the 10 Wolverine Wigwams, we had the following actual costs and amount: Materials 60 yards at $4 per yard $240 Labor 30 hours at $6 per hour 180 Variable OH 30 hours at $2 per hour 60 Fixed OH 120 Actual Cost per unit $600 Materials purchased were 100 yards Looking at Materials: Standard to make 1 unit is 5 yards So, Standard to make 10 units is 50 yards Actual for making 1 unit is 6 yards Actual for making 10 units is 60 yards This leads us to the two materials variances. Materials Price Variance (MPV) = (Actual Price/Unit – Standard Price/Unit) x Actual Quantity Purchased Materials Usage Variance (MUV) = (Actual Qty. used – Standard Qty. used) x Standard Price
Explanation / Answer
The two variances are calculated as below:
1) Material Price Variance (MPV) = (Actual Price per unit -Stand Price per unit) * Quantity purchased
= (6 - 4) * 100 = $ 200 (Adverse)
2) Material Usage Variance (MUV) = (Actual Quantity used - Standard Quantity for Actual Prodn) * Standard Price
= (60 - 50) * 4 = $ 40 (Adverse)
Note : Material Price Variance has been calculated at the point of purchase itself ie: for 100 yards.