ACCT 210 1st Edition Lecture 14Outline of Last Lecture I. Chapter 6.1: Flexible budgetsOutline of Current Lecture I. Price varianceII. Quantity varianceCurrent Lecture1. Price variancea. Price variance: what you expected to pay – what you actually paidb. Price variance = (actual quantity x actual price) – (actual quantity x standard price)i. Look at quantity PURCHASED not produced/usedii. Standard price is what you budgetedc. Practice questions section 6.2i. If the actual cost of direct materials is $5.00 per unit while the standard cost of direct materials is $4.50 per unit,1. the direct materials quantity variance will be favorable.2. the direct materials quantity variance will be unfavorable.3. the direct materials price variance will be favorable.4. the direct materials price variance will be unfavorable.ii. Stoner Concrete Creations purchased 5,000 pounds of ready mix concrete‐during March at a price of $0.75 per pound. The company used 4,500 pounds of the mix during the month. The standard price for the concrete mix was $0.80 per pound. Stoner's direct materials price variance for March is1. $250 F.2. $250 U.3. $225 F.4. $225 U.d. Exercise 6-4i. Washington WaterWorks manufactures snorkel gear. During the past month, Washington purchased 4,200 pounds of plastic to use in its dive masks, at a cost of $6,552. The standard price for the plastic is $1.50 per pound. The company actually used 4,010 pounds of the plastic to produce15,400 dive masks. Calculate Washington's direct materials price variance for the month.ii. Variance = $6,552 – ($1.50 x 4,200)Variance = $6,552 – $6,300Variance = $252 unfavorablee. Exercise 6-5i. Phelps Gold manufactures award medals. In August, Phelps produced 5,500 medals, 160 more than expected. During the month, the company purchased 1,200 ounces of gold for $971,748. The standard price for the gold is $814 per ounce. The company actually used 1,040 ounces of gold for production. Calculate Phelps's direct materials price variance for the month.ii. Variance = $971,748 – (1,200 x $814)Variance = -5,052$5,052 favorablef. Exercise 6-6i. Bennett Enterprises purchased 100,000 gallons of direct materials during the year at a price of $2.60 per gallon. Bennett's direct materials price variance was $5,600 F. Calculate the standard price per gallon of direct materials.ii. $-5,600 = ($2.60 x 100,000) – 100,000x$-5,600 = $260,000 – 100,000x$265,600 = 100,000xStandard price = $2.66/gallon2. Quantity variancea. Quantity variance = (Actual quant x standard price) – (stand quant x stand price)i. Actual quantity = quantity usedii. Hold budget price constant (standard price)b. Exercise 6-7i. TechSolvers produces 8 foot USB cables. During the past year, the ‐company purchased 559,000 feet of plastic coated wire at a price of ‐$0.25 per foot. The direct materials standard for the cables allows 8.4 feetof wire at a standard price of $0.23. During the year, the company used a total of 593,100 feet of wire to produce 70,700 8 foot cables. Calculate ‐TechSolvers' direct materials quantity variance for the year.ii. Variance = (593,100 x $0.23) – [(70,700 x 8.4) x $0.23)]Variance = $136,413 – (593,880 x $0.23)Variance = $136,413 - $136,592.40Variance = $-179.40$179 favorablec. Exercise 6-8i. Pelligrini, Inc. makes high quality swimsuits. During 2011, the company ‐produced 840 suits, using 1,068 yards of material. During the year, the company purchased 978 yards of material for $4,575. The direct materialsstandard for the swimsuits allows 1.2 yards of material at a standard priceof $5 per yard. Calculate Pelligrini's direct materials quantity variance for the year.ii. Variance = (1,068 x $5) – [(840 x 1.2) x $5]Variance = $5,340 – (1,008 x $5)Variance = $5,340 - $5,040Variance = $300$300