Problem data follows: Number of rings produced in March 1,500 Standard cost of e
ID: 2547449 • Letter: P
Question
Problem data follows: Number of rings produced in March 1,500 Standard cost of each ounce of gold $ 1,000 Standard quantity of material in ounces 0.50 Cost of gold purchased and used in March $ 788,480 Cost of gold purchased per ounce $ 1,024 Required Determine the material price variance and the material quantity variance for March. Indicate whether each variance is favorable or unfavorable. Material price variance × = Favorable or unfavorable? Material quantity variance × = Favorable or unfavorable? What-if? Consider the following after you have completed the requirements of E11-6. Suppose that the amount of gold purchases remains at $788,480 and the company determines it actually used 740 ounces instead of 770 ounces of material. There is no beginning inventory of raw materials. 1. Calculate the two material variances. Material price variance × = Favorable or unfavorable? Material quantity variance × = Favorable or unfavorable? 2. Did either variance improve? Explain. 2. Why might a company want to investigate material price variances at a different point in time than it investigates material quantity variances? Problem data follows: Number of rings produced in March 1,500 Standard cost of each ounce of gold $ 1,000 Standard quantity of material in ounces 0.50 Cost of gold purchased and used in March $ 788,480 Cost of gold purchased per ounce $ 1,024 Required Determine the material price variance and the material quantity variance for March. Indicate whether each variance is favorable or unfavorable. Material price variance × = Favorable or unfavorable? Material quantity variance × = Favorable or unfavorable? What-if? Consider the following after you have completed the requirements of E11-6. Suppose that the amount of gold purchases remains at $788,480 and the company determines it actually used 740 ounces instead of 770 ounces of material. There is no beginning inventory of raw materials. 1. Calculate the two material variances. Material price variance × = Favorable or unfavorable? Material quantity variance × = Favorable or unfavorable? 2. Did either variance improve? Explain. 2. Why might a company want to investigate material price variances at a different point in time than it investigates material quantity variances?Explanation / Answer
If 770 ounces are purchased and used
Actual Qty of gold used = Cost of gold purchased and used/Cost of gold purchased per ounce
= $788,480/$1,024 = 770 ounces of gold
Material Price Variance = (Std Price - Actual Price)*Actual Qty
= ($1,000 - $1,024)*770 = ($18,480) Unfavorable
Std Qty required for Actual production = 1,500 rings*0.50 = 750 ounces of gold
Material Quantity Variance = (Std. Qty - Actual Qty)*Std. Price
= (750 - 770)*$1,000 = ($20,000) Unfavorable
If 740 ounces are used out of 770 ounces purchased
Material Price Variance = (Std Price - Actual Price)*Actual Qty purchased
= ($1,000 - $1,024)*770 = ($18,480) Unfavorable
Material Quantity Variance = (Std. Qty - Actual Qty used)*Std. Price
= (750 - 740)*$1,000 = $10,000 Favorable
1) The Material Quantity variance has improved from $20,000 unfavorable to $10,000 Favorable. Material Price variance remain unchanged. Material quantity variance has improved because less quantity of ounces are used as compared to quantity purchased.
2) Material price variance is computed to know the variance between the standard price and actual price paid for the purchase of materials, therefore it is computed at the point of purchase of materials. Material quantity variance is computed to know the difference between standard quantity used for actual production and actual quantity consumed. It is computed at the point of consumption of material.
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