Quality Cabinet Company uses a standard costing system and produced 2,100 cabine
ID: 2473274 • Letter: Q
Question
Quality Cabinet Company uses a standard costing system and produced 2,100 cabinets during May. The standard cost of wood is $21 per linear foot, and the standard quantity for each cabinet is 30 linear feet. During May, the company purchased 65,800 linear feet of wood for $1,316,000, and 64,400 feet were used in production. The company purchases all materials on account.
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No.
Account Titles and Explanation
Debit
Credit
1.
(To record material purchases)
2.
(To record material used in production)
Quality Cabinet Company uses a standard costing system and produced 2,100 cabinets during May. The standard cost of wood is $21 per linear foot, and the standard quantity for each cabinet is 30 linear feet. During May, the company purchased 65,800 linear feet of wood for $1,316,000, and 64,400 feet were used in production. The company purchases all materials on account.
Explanation / Answer
Direct material price variance (also called the direct material spending/rate variance) is the product of actual quantity of direct material used and the difference between standard price and actual price per unit of direct material. It is calculated using the following formula
Where,
SP is the standard unit price of direct material
AP is the actual price per unit of direct material
AQ is the actual quantity of direct material used
SP = 21
AP = 1,316,000/65,800 = 20
AQ = 64,400
= (21-20)*64,400
= $64,400 Favorable
2)
Direct material quantity variance (also called the direct material usage/efficiency variance) is the product of standard price of a unit of direct material and the difference between standard quantity of direct material allowed and actual quantity of direct material used. The formula to calculate direct material quantity variance is:
Where,
SQ is the standard quantity allowed
AQ is the actual quantity of direct material used
SP is the standard price per unit of direct material
SQ = 2100 * 30 = 63,000
AQ = 64,400
SP = 21
63,000 - 64,400 * 21
= -29,400 Unfavorable
Journal Entries:
Purchases account debit 1,316,000
To cash 1,316,000
( For purchases of material)
2)
Production exp debit 1,288,000
To purchases 1,288,000
DM Price Variance = ( SP AP ) × AQ