Question

Jackety is producing high quality waterproof jackets that can be worn in all seasons.

It is budgeted that 15 yards of raw material can produce 10 jackets. The material costs $5 per yard. 2,300 jackets were originally budgeted but only 2,000 jackets were actually made. The actual cost per yard was $5.40 and 3,074 yards were used up.

A) What is the price variance? (2 points)

B) What is the quantity variance? (2 points)

C)What is the spending variance? (1 point)

Don’t forget to indicate whether the variances are favorable or unfavorable! (1 point)

Answer 1

Ans. A	Price variance = (Standard price   - Actual price) * Actual quantity
	($5 - $5.40) * 3,074
	-$0.40 * 3,074
	-$1,230	or   $1,230 unfavorable
Ans. B	Quantity variance = (Standard quantity - Actual quantity) * Standard price
	(3,000 - 3,074) * $5
	-74 * $5
	-$370	or   $370 unfavorable
	*Standard quantity per unit of output = 15 yards / 10 jacket = 1.5 yards per jacket
	*Standard quantity = Actual output * Standard quantity per unit of output
	2,000 jacket * 1.5 yards per jacket
	3,000 jackets
Ans. C	Spending variance = Price variance + Usage variance
	-$1,230 + (-$370)
	-$1,230 - $370
	-$1,600	or   $1,600 unfavorable