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?