Question

Jones Company, a manufacturer of specialty stuffed animals, has just installed a standard costing system. They have done time-and-motion studies and have determined the following standards:

                                                                                            Per Batch

            Material (2 yards @ $6 per stuffed animal)               $12

            Labor (3 hours @ $10 per hour)                                 30

The Purchasing Department reported buying 75 yards of fabric at a total cost of $420. The manager of the Production Department reported that 256 yards of fabric were used to make 120 stuffed animals. Top management was quite upset because they ordered 115 yards of fabric to fill a rush order of one of their best customers, but they had to return 40 yards of fabric due to poor quality. Actual labor cost was $4,309.20 for a total of 342 hours.

Required:

Calculate the materials price variance, materials quantity variance, and the total materials variance and interpret the variances.

Answer 1

Hello

Material Price Variance = (Standard Price - Actual Price) * Actual Quantity = ($6 - ($420/75)) * 75 = $30(Favourable)

This favourable variance indicates the efficiency of the purchasing department of the entity.

Material Quantity Variance = (Standard Quantity for actual output - Actual Quantity) * Standard Price = ((2*120) - 256) * $6 = - $96(Unfavourable)

This unfavourable variance indicates the inefficiency of the production department.

Total Material Variance = Material Price Variance + Material Quantity Variance = $30(Favourable) + $96(Unfavourable) = $66(Unfavourable)

This implies that purchasing department is working with efficiency but production department is performing beow par.

I hope this solves your query.

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