Blueprint Problem: Direct materials variance Materials Variance Analysis Varianc
ID: 2466901 • Letter: B
Question
Blueprint Problem: Direct materials variance
Materials Variance Analysis
Variance analysis is used as a performance evaluation measure for responsible managers. Materials variance occurs when the cost of materials or the amount of materials used for actual output deviates from what was initially planned by company management for a given period of time or for a specific amount of production. Materials variance analysis is conducted by comparing the standard materials cost for production with the actual materials cost incurred for the actual production quantity of the product.
There are two parts to materials variance analysis. The first is a comparison of the standard cost per unit of materials with the actual cost per unit of materials, which results in the determination of the materials price variance. The second is a comparison of the standard quantity of use of units of materials with the actual quantity of use of units of materials for the actual production completed, which results in the determination of the materials (or quantity) variance.
Materials Price Variance
This type of variance is concerned with the difference between what was paid for materials and what should have been paid for materials used in production.
Which of the following activities are possible causes of materials price variance? Select "Yes" for all that apply.
Materials Usage Variance
This type of variance is concerned with the difference between materials used and materials that should have been used for the actual output.
Which of the following activities are possible causes of materials price variance? Select "Yes" for all that apply.
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Solution
Gauging the Favorableness of Variances
When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad.
Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual).
If a company calculates that the actual cost for materials used was $110,000, and the amount budgeted for those materials was $160,000, the actual cost for materials used less the budgeted cost for materials used is $__________. This tells you that the actual cost at actual materials used is Selectequal toless thangreater thanCorrect 2 of Item 2 the budgeted cost at actual hours worked.
What type of variance is this?
SelectNo varianceFavorable price varianceUnfavorable price varianceCorrect 3 of Item 2
If a company calculates that the budgeted cost for actual materials used is $190,000, and the budgeted cost at the budgeted amount of materials to have been used is $190,000, the budgeted cost at actual materials used less the budgeted cost at budgeted materials to have been used is $. This tells you that the actual materials used at budgeted cost is Selectequal toless thangreater thanCorrect 5 of Item 2 the budgeted materials used at budgeted cost.
What type of variance is this?
SelectNo varianceFavorable usage varianceUnfavorable usage varianceCorrect 6 of Item 2
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Solution
Standard Materials Cost
The controller at your shoemaking company has determined that under normal conditions, you will spend $8.60 per unit of materials, and it will take 2.8 units of material per pair of shoes. Given this information, calculate the standard cost of materials per pair of shoes. If require, round the standard cost per pair of shoes to the nearest cent.
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Actual Materials Cost
During May, your shoemaking company incurred actual direct materials costs of $69,069 for 7,590 units of direct materials in the production of 2,225 pairs of shoes. Given this information, calculate the actual cost of materials per unit. If require, round the actual cost of materials per unit to the nearest cent.
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Solution
APPLY THE CONCEPTS: Conduct the Materials Variance Analysis
Complete the following graphic to compute the direct materials price variance, the direct materials usage variance, and the total materials variance for your shoe-making business. When required, enter the rates as dollars and cents. If required, use the minus sign to indicate a negative value.
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Solution
1. Using lower-quality materials than planned SelectYesNoCorrect 1 of Item 1 2. Using higher-quality materials than planned SelectYesNoCorrect 2 of Item 1 3. Unexpected quantity discounts SelectYesNoCorrect 3 of Item 1Explanation / Answer
Material price Variance Responsible Activity Variance 1. Using lower-quality materials than planned Yes F 2. Using higher-quality materials than planned Yes U 3. Unexpected quantity discounts Yes F Materail Usage Variance 4 Having a higher-than-normal product defect rate Yes U 5 Using more materials in the actual production than planned Yes U 6 Using less materials in the actual production than planned Yes F a) -$50000 (110000-160000) Material Price Variance and it is favorable variance by $50000 formula= Actual cost- Standard cost for actual hours Actual cost is less than Standard cost b) $190000-190000=0 Material efficiency variance Standard cost*(Actual quantity-Standard quantity) Variance = No Actual material used at budgeted cost is equal to budgeted material used at budgeted cost Standard Cost per pair of shoes Manufacturing Costs Standard Price x Standard Materials Standard Cost per Unit of Material per Pair per Pair Direct Materials 8.6 2.8 24.08 Manufacturing Costs Actual Total Cost / Actual Materials = Actual Cost of Materials Used per Unit Direct Materials 69069 7590 9.1 7590/2225 3.41 material per shoes 3,41*9.1 cost of one pair of shoes 31.042 Actual Cost Standard Cost Actual Materials x Actual Rate Actual Materials x Standard Rate Standard Materials x Standard Rate 7590 x 9.1 69069 7590 x 8.6 65274 6230 x 8.6 = $ = $ 2225*2.8 = 53578 Material Price Variance formula= Actual cost- Standard cost for actual hours 69069-65274 3795 U Material Usage Variance Standard cost*(Actual quantity-Standard quantity) 65274-53578 11696 U