Question
Blueprint Problem: Direct materials variance Materials Variance Analysis Variance analysis is used as a performance evaluation measure for responsible managers. Materials variance occurs when the
Blueprint Problem: Direct materials variance
Materials Variance Analysis
Variance analysis is used as a performance evaluation measure for responsible managers. Materials variance occurs when the cost of materials or the amount of materials used for actual output deviates from what was initially planned by company management for a given period of time or for a specific amount of production. Materials variance analysis is conducted by comparing the standard materials cost for production with the actual materials cost incurred for the actual production quantity of the product.
There are two parts to materials variance analysis. The first is a comparison of the standard cost per unit of materials with the actual cost per unit of materials, which results in the determination of the materials price variance. The second is a comparison of the standard quantity of use of units of materials with the actual quantity of use of units of materials for the actual production completed, which results in the determination of the materials (or quantity) variance.
Materials Price Variance
This type of variance is concerned with the difference between what was paid for materials and what should have been paid for materials used in production.
Which of the following activities are possible causes of materials price variance? Select "Yes" for all that apply.
Gauging the Favorableness of Variances
When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad.
Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual).
Standard Materials Cost
The controller at your shoemaking company has determined that under normal conditions, you will spend $8.30 per unit of materials, and it will take 2.6 units of material per pair of shoes. Given this information, calculate the standard cost of materials per pair of shoes. If require, round the standard cost per pair of shoes to the nearest cent.
Actual Materials Cost
During November, your shoemaking company incurred actual direct materials costs of $58,872 for 6,690 units of direct materials in the production of 2,150 pairs of shoes. Given this information, calculate the actual cost of materials per unit. If require, round the actual cost of materials per unit to the nearest cent.
APPLY THE CONCEPTS: Conduct the Materials Variance Analysis
Complete the following graphic to compute the direct materials price variance, the direct materials usage variance, and the total materials variance for your shoe-making business. When required, enter the rates as dollars and cents. If required, use the minus sign to indicate a negative value.
1. Using lower-quality materials than planned 2. Using higher-quality materials than planned 3. Unexpected quantity discounts Materials Usage Variance This type of variance is concerned with the difference between materials used and materials that should have been. used for the actual output. Which of the following activities are possible causes of materials price variance? Select "Yes" for all that apply. 1. Having a higher-than-normal product defect rate 2. Using more materials in the actual production than planned 3. Using less materials in the actual production than planned Yes Yes Yes Y Yes Yes YesStep by Step Solution
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