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Homework answers / question archive / Your company makes plastic bottles and has the following standards for materials: 429 million bottles produced and $4

Your company makes plastic bottles and has the following standards for materials: 429 million bottles produced and $4

Accounting

Your company makes plastic bottles and has the following standards for materials: 429 million bottles produced and $4.71 cost per 1,000 ozs of plastic. The company budgeted for $196510 in plastic cost for the year. At the end of the year, you realize the firm produced 496 million bottles and used 39 million ozs of plastic. Plastic cost the firm 5225738. 
Is the above variance favorable or unfavorable? 
Answer 2 for favorable and 1 for unfavorable. 
Answer: 
Plastic efficiency variance (absolute value, round to whole number) 
Answer: 
Plastic price variance (absolute value, round to whole number) 
Answer: 
 

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Computation of Plastic Price Variance:

Plastic Price Variance = (Actual Price - Standard Price) * Actual Quantity

Here,

Actual Price = Actual cost / Actual number of plastic(ozs)

= $225,738 / 39,000,000

= $.00579 per ozs

 

Standard price per ozs = $4.71 / 1000 = $0.00471 per ozs

 

Plastic Price Variance = ($.00579 - $.00471) * 39,000,000

= 0.00108 * 39,000,000

= $42,048 Unfavorable.

 

Computation of Plastic Efficiency Variance:

Plastic Efficiency Variance = (Actual Quantity - Standard Quantity) * Standard Price

Here,

Standard Quantity = ($196510/$4.71*1000)/429,000,000*496000000 = 48237871.12

 

Plastic Efficiency Variance = (39,000,000 - 48237871.12) * .00471

= $43,510 Favorable

 

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