Question

EXERCISE 10–1 Direct Materials Variances LO10–1 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 35,000 helmets, using 22,500 kilograms of plastic. The plastic cost the company $171,000. According to the standard cost card, each helmet should require 0.6 kilograms of plastic, at a cost of $8 per kilogram.

Required:
1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 35,000 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 35,000 helmets?

3. What is the materials spending variance?

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

Answer 1

Ans.(1)	Standard Quantity =			35,000 x 0.6
	=			21000 Kgs.
Ans.(2)	Standard Material Cost =			21,000 Kg x $8
	=			$168,000
Ans.(3)	Material Spending Variance =			[{AQ(AP-SP)] - [SP(AQ-SQ)]
	=			[22,500(7.6 - 8)] - [8(22,500-21,000)]
	=			(22,500 x - 0.4) - (8 x 1,500)
	=			9,000 - 12,000
	=			$ 3,000 Unfav.
Ans.(4)	Material Price Variance =			AQ(AP-SP)
	=			22,500($7.6 - $8)
	=			22,500 x -$0.4
	=			$ 9,000 Fav.
	Material Usage Variance =			SR(AQ-SQ)
	=			$ 8(22,500 - 21,000)
	=			$ 8 x 1,500
	=			$ 12,000 Unfav.