Question

Earlene’s Eyewear manufactures eyeglass frames.  The company uses a standard cost system.  Earlene has set the following standards for frame model 19841.

Direct Material                        4.5 oz. plastic per frame at $3.65 per oz.                 $16.425 per frame

Direct Labor                            .8 hours at $28 per hour                                             $22.40 per frame

In April, Earlene’s made 2,500 frames with a material cost of $48,000.  Earlene’s Eyewear purchased 12,000 oz. of plastic but only used 10,000 oz. of plastic for frame 19841.  

What is the Material Price Variance?

Which of the following could explain the material price variance calculated above?

a.   Earlene’s Eyewear paid less per oz because the material was purchased in bulk to receive a discount.

b.   Earlene’s Eyewear earned less per frame because more materials were purchased than used.

c.    Earlene’s Eyewear earned more per frame because there were no machine breakdowns and fewer labor hours were required than planned.

d.   Earlene’s Eyewear paid more per oz because the company decided to go with a higher quality material.       

What is the Material Quantity Variance?

Which of the following could explain the material quantity variance calculated above?

a.   Earlene’s Eyewear incurred less materials expense because there was very little waste which fell below the standard allowance.

b.   Earlene’s Eyewear incurred more materials expense because the price for the material rose due to an unexpected price increase across the industry.

c.    Earlene’s Eyewear incurred less materials expense because there were no machine breakdowns and fewer labor hours were required than planned.

d.   Earlene’s Eyewear incurred more materials expense because the company decided to go with a higher quality material.

Answer 1

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($3.65/OZ. - $4Oz ) × 12000 Oz. = $4200 unfavourable

* Actual price per Unit= 48000/ 12000=4

Correct answer

d.  Earlene’s Eyewear paid more per oz because the company decided to go with a higher quality material.  

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

((4.5 Oz. X 2500)-10000 Oz.)X $3.65 = $4562.50 Favourable

Correct answe :-a. Earlene’s Eyewear incurred less materials expense because there was very little waste which fell below the standard allowance.