Question

TinkInc. produces fairy wands which contain the key ingredient of pixy dust. Each fairy wand is budgeted to use 3 grams of pixy dust at a price of $2.00 per gram. During the quarter, 22,000 grams were purchased for $2.10 per gram, while only 20,000 grams were used in production to produce 7,000 fairy wands.

Compute the direct materials price and efficiency variances. Be sure to indicate whether the variances are favorable or unfavorable.

Based on your answer above, briefly explain the material variances of TinkInc. Be sure to provide a plausible explanation for each variance. If you were the purchasing manager at TinkInc., are you happy with your performance?

Answer 1

1)material price variuance=actual quantityx(standard price-actual price)=20000g*($2-$2.1)=$2000U

2)material efficiency variance=standard price x (standard quantity-actual quantity)=$2.1 x (21000-20000)=$2100F

standard quantity=units produced x standard material per unit=7000 units x 3 grams=21000 grams

U=Unfavourable variance,F=favourable variance

material price variuance

here,material price variance is unfavourable because standard rate per unit is $2,but actual units purchased at $2.1.because of these increased rate the unfavourable variance happened.

material efficiency variance

Here material efficiency variance is favourable because actual usage is less than the standard quantity expected for actual production.