CHAPTER7 Answer the following questions using the information below 2. Maria\'s
ID: 2540247 • Letter: C
Question
CHAPTER7 Answer the following questions using the information below 2. Maria's vineyard has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance Flexible Budget 20,000 30,000 0,000 Variances Material A Material B Material C Price Efficiency 1.200F 800U 1,000F S00F 400U a) The actual amount spent for Material A was b) The explanation that lower-quality materials were purchased is most likely for which material? Why? ) Make the appropriate standard costing journal entry(s) for Material CExplanation / Answer
Solution:
In the question flexible budget is given which will help in answering the questions.
Flexible Budget is the budget prepared using actual activity achieved at standard cost.
Part a --- Actual amount spent for Material A = Flexible Budget for Material A + Price Variance
= $20,000 + $1,000
= $21,000
Price Variance for Material is Unfavorable, it means actual material price are higher than standard.
Part b –
One of the reason of Unfavorable Material Efficiency Variance is the quality of material.
If the quality of material is poor, the efficiency is less resulting unfavorable variance.
If the quality of material is good, the efficiency is more resulting favorable variance.
From the above efficiency variances, the unfavorable efficiency variance was for Material B. It means Material B is the lower quality material were purchased.
Part c – Appropriate standard costing journal entry for material c
Date
Account Titles and Explanation
Debit
Credit
Material Price Variance
Materials (Standard Purcahse price)
$40,000
Material Price Variance (Unfavorable)
$1,400
Accounts Payable (Actual Purcahse Price)
$41,400
Material quantity variance
Work In Process (Standard)
$40,000
Materials quantity variance (Favorable)
$1,000
Materials
$39,000
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Date
Account Titles and Explanation
Debit
Credit
Material Price Variance
Materials (Standard Purcahse price)
$40,000
Material Price Variance (Unfavorable)
$1,400
Accounts Payable (Actual Purcahse Price)
$41,400
Material quantity variance
Work In Process (Standard)
$40,000
Materials quantity variance (Favorable)
$1,000
Materials
$39,000