Question

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Hart Company made 3,400 bookshelves using 22,400 board feet of wood costing $315,840. The company's direct materials standards for one bookshelf are 8 board feet of wood at $14.00 per board foot.

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

(1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
(2) Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?

Answer 1

1. direct material price variance = (SP - AP) *AQ

here,

SP = $14 per feet.

AP =$315,840 / 22,400

=>$14.10.

AQ =22,400.

=> (14-14.10)*22,400.

=>$2,240 U...(unfavorable since actual price is greater than standard price).

direct material quantity variance = (SQ - AQ)*SP

=> SQ = 3400 book shelves *8 board feet

=>27,200 feet.

AQ =22,400 feet.

SP = 14.

=> (27,200-22,400)*$14

=>$67,200 F....(favorable since actual is lower than standard).

2.He will investigate Direct material quantity variance.

Since 5% of actual material costs = $315,840*5%

=>$15,792.

Since direct material quantity variance is greater than $15,792 it will be investigated.