ACCT 210 1st Edition Lecture 14 Outline of Last Lecture I Chapter 6 1 Flexible budgets Outline of Current Lecture I Price variance II Quantity variance Current Lecture 1 Price variance a Price variance what you expected to pay what you actually paid b Price variance actual quantity x actual price actual quantity x standard price i Look at quantity PURCHASED not produced used ii Standard price is what you budgeted c Practice questions section 6 2 i 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 is 1 250 F 2 250 U 3 225 F 4 225 U d Exercise 6 4 i 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 produce 15 400 dive masks Calculate Washington s direct materials price variance for the month ii Variance 6 552 1 50 x 4 200 Variance 6 552 6 300 Variance 252 unfavorable e Exercise 6 5 i 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 favorable f Exercise 6 6 i 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 000x Standard price 2 66 gallon 2 Quantity variance a Quantity variance Actual quant x standard price stand quant x stand price i Actual quantity quantity used ii Hold budget price constant standard price b Exercise 6 7 i 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 feet of 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 40 Variance 179 40 179 favorable c Exercise 6 8 i 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 materials standard for the swimsuits allows 1 2 yards of material at a standard price of 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 5 040 Variance 300 300 unfavorable