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Wales Company purchased (at a cost of $10,800) and used 2,400 pounds of materials during May
Wales Company purchased (at a cost of $10,800) and used 2,400 pounds of materials during May. Wales’s standard cost of materials per unit produced is based on 2 pounds per unit at a cost $5 per pound. Production in May was 1,070 units.
Instructions
(a) Compute the total, price, and quantity variances for materials.
(b) Assume Wales also had an unfavorable labor quantity variance. What is a possible scenario that would provide one cause for the variances computed in (a) and the unfavorable labor quantity variance?
Expert Solution
|
(a) |
(AQ X AP) ( $10,800) |
– – |
( SQ X SP) (2,140* X $5) |
= = |
Total Materials Variance $100 U |
|
|
(AQ X AP) ( $10,800) |
– – |
( AQ X SP) (2,400 X $5) |
= = |
Materials Price Variance $1,200 F |
|
|
( AQ X SP) (2,400 X $5) |
– – |
( SQ X SP) (2,140* X $5) |
= = |
Materials Quantity Variance $1,300 U |
*1,070 X 2
(b) One possible cause of an unfavorable materials quantity variance is the purchase of substandard materials. Such materials would normally be purchased at a lower price than normal, which means there would also be favorable materials price variance. Substandard materials could also cause work slowdowns and delays, causing an unfavorable labor quantity variance. Therefore, the purchase of substandard materials could cause all three variances mentioned.
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