Question

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,700 helmets, using 2,627 kilograms of plastic. The plastic cost the company $17,338.

According to the standard cost card, each helmet should require 0.61 kilograms of plastic, at a cost of $7.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,700 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 3,700 helmets?

3. What is the materials spending variance?

4. What is the materials price variance AND the materials quantity variance?

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Answer 1

1. Standard quantity of plastic required to make 3700 helmets = 3,700 x 0.61 = 2,257 kg

2. Standard material cost allowed to make 3,700 helmets = 2,257 x 7 = 15,799

3. Material spending variance = Total cost incurred - Standard material cost = 17,338 - 15,799 = 1,539 (Unfavourable)

4. Material price variance = Actual quantity of plastic x (Standard price per kg - Actual price per kg) = 2,627 x (7 - 6.6) = 1,051 (Favourable)

Material quantity variance = Standard price of plastic per kg x (Standard quantity - Actual quantity) = 7 x (2,257 - 2,627) = 2,590 (Unfavourable)