Pitbull Company uses standard costs to control materials costs. The standards ca
ID: 2496590 • Letter: P
Question
Pitbull Company uses standard costs to control materials costs. The standards call for 6 pounds of materials for each finished unit produced. The standard cost per pound of materials is $2.00. During May, 10,000 finished units were manufactured, 40,000 pounds of materials were used. The price paid for materials was $2.25 per pound. There were no beginning or ending materials inventories. a. Determine the flexible budget materials cost for the manufacture of 10,000 finished units. b. Determine the actual materials cost incurred for the manufacture of 10,000 finished units, and compute the total (flexible budget) materials variance. c. How much of the difference between the answers to requirements (a) and (b) was related to the price paid for the purchase of materials? d. How much of the difference between the answers to requirements (a) and (b) was related to the quantity of materials used?
Explanation / Answer
a.
Calculation of flexible budget materials cost:
Finished unit produced
10000
Standard Pounds of materials for each finished unit produced
6
Standard Pounds of materials required = 10000*6
60000
Standard cost per pound of materials
$2
Flexible budget materials cost = 60000*$2
$120,000
b.
Calculation of actual materials cost incurred for the manufacture of 10,000 finished units:
Actual Pounds of materials used =
40000
Actual cost per pound of materials
$2.25
Flexible budget materials cost = 40000*$2.25
$90,000
Less: Flexible budget materials cost =
$120,000
Total (flexible budget) materials variance
($30,000)
Favorable
c.
Calculation of Material Price variance :
Actual Price (A)
$2.25
Standard Price (B)
$2
Actual Pounds of materials used (C)
$ 40,000
Material Price variance = (A-B)*C
$ 10,000
Unfavorable
d.
Calculation of Material Quantity variance :
Actual Quantity (A)
40,000
Standard Quantity (B)
60,000
Standard Price (C)
$ 2
Material Price variance = (A-B)*C
$ (40,000)
Favorable
a.
Calculation of flexible budget materials cost:
Finished unit produced
10000
Standard Pounds of materials for each finished unit produced
6
Standard Pounds of materials required = 10000*6
60000
Standard cost per pound of materials
$2
Flexible budget materials cost = 60000*$2
$120,000
b.
Calculation of actual materials cost incurred for the manufacture of 10,000 finished units:
Actual Pounds of materials used =
40000
Actual cost per pound of materials
$2.25
Flexible budget materials cost = 40000*$2.25
$90,000
Less: Flexible budget materials cost =
$120,000
Total (flexible budget) materials variance
($30,000)
Favorable
c.
Calculation of Material Price variance :
Actual Price (A)
$2.25
Standard Price (B)
$2
Actual Pounds of materials used (C)
$ 40,000
Material Price variance = (A-B)*C
$ 10,000
Unfavorable
d.
Calculation of Material Quantity variance :
Actual Quantity (A)
40,000
Standard Quantity (B)
60,000
Standard Price (C)
$ 2
Material Price variance = (A-B)*C
$ (40,000)
Favorable