# Direct Material Price Variance and Lbs

Topics: Direct material price variance, Variance, Analysis of variance Pages: 4 (663 words) Published: July 16, 2010
PROBLEM ON VARIANCE ANALYSIS

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Submitted to:

Submitted by:

ERWIN S. FLORES

BETA COMPANY

Beta Company produces two products, A and B, each of which uses materials X and Y. The following unit standard costs apply:

| |Material X |Material Y |Direct Labor | |Product A |4 lbs @ \$15 |1 lb @ \$9.50 |1/5 hr @ \$18 | |Product B |6 lbs @ \$15 |2 lbs @ \$9.50 |1/3 hr @ \$18 |

During November 4,200 units of A and 3,600 units of B were produced. Also, 39,000 pounds of X were purchased at \$14.40, and 11,000 pounds of Y were purchased at \$9.70; all of these materials (but no other materials) were used for the month’s production. This production required 2,025 direct labor-hours at \$17.50.

Questions:

1. Calculate the material price variance and usage variances for the month. 2. Calculate the labor rate and efficiency variances for the month. 3. How would your answers to Questions 1 and 2 change if you had been told that November’s planned production activity was 4,000 units of A and 4,000 units of B? 4. How would your answers to question 1 and 2 change if you had been told that November’s sales were 4,000 units of A and 3,500 units of B?

SOLUTIONS:

1. (a.) MATERIAL PRICE AND (b.) USAGE (QUANTITY) VARIANCES

Material X
a. = (14.40 – 15) @ 39,000
= 0.60 F @ 39,000
= 23,400 F
b. = (39,000 – ((4,200 @ 4 lbs) + (3,600 @ 6 lbs)() @ 15 = (39,000 – 38,400) @ 15
= 600 UF @ 15
= 9,000 UF

Material Y
a. = (9.70 – 9.50) @ 11,000
= 0.20 UF @ 11,000
= 2,200 UF
b. = (11,000 - ((4,200 @ 1 lbs) + (3,600...