Calculate the materials price variance and materials usage variance for one mont

Question

Calculate the materials price variance and materials usage variance for one month?

Acme Company's production budget for August is 18,100 units and includes the following component unit costs: direct materials, $8.00; direct labor, $10.50; variable overhead, $6.50. Budgeted fixed overhead is $38,000. Actual production in August was 19,872 units, actual unit component costs incurred during August include direct materials, $9.00; direct labor, $10.00; variable overhead, $7.50. Actual fixed overhead was $40,100, the standard direct material cost per unit consists of 8 pounds of raw material at $1.0 per pound. During August, 223,560 pounds of raw material were used that were purchased at $0.80 per pound. Calculate the materials price variance and materials usage variance for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Explanation / Answer

SQSP                                     AQSP                                     AQAP

158,976 x 1                          223,560 x 1                          223,560 x .80

=$158976                             =$223,560                            =$178,848

SP=standard price =$8

1 pound of raw material=$8 / 8=$1

SQ=Standard quantity required for actual production=8 x 19,872=$158,976

AQ=Actual quantity =223,560

Material price variance=AQSP-AQAP

=223,560-178,848=$44,712 F

Material usage variance=SQSP-AQSP

=158,976-178,848=$19,872 U

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