A difference between the quantity of materials purchased and used has nothing to do with a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. The materials efficiency variance is the difference between the actual quantity of material used and the standard quantity of material allowed for the actual output, multiplied by the standard price. The materials purchase price variance uses the actual quantity of materials purchased instead of the quantity of materials used.
A difference between the quantity of materials purchased and used has nothing to do with a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. The materials efficiency variance is the difference between the actual quantity of material used and the standard quantity of materials allowed multiplied by the standard price. The materials purchase price variance uses the actual quantity of materials purchased instead of the quantity of materials used.
An unfavorable materials quantity variance of $120 indicates that more materials were used than the standard allowed, not less.
A favorable materials purchase price variance of $380 indicates that the actual price was less than the standard price. We also can prove it by using the quantity variance formula to find the actual quantity of direct materials used and then the price variance formula to calculate the actual price. 1. Use the quantity variance formula to find the Actual Quantity of direct materials used. (AQ ? SQ) × SP = Quantity Variance The standard quantity allowed is 6 pounds per unit. Therefore, the standard quantity allowed for the actual production of 3,100 units is 3,100 × 6, or 18,600. (AQ ? 18,600) × $0.30 = $120 .3AQ ? 5,580 = 120 .3AQ = 5,700 AQ = 19,000 2. Use the price variance formula to find the Actual Price of direct materials purchased. (AP ? SP) × AQ (AP ? $0.30) × 19,000 = $(380) 19,000AP ? 5,700 = $(380) 19,000AP = $5,320 AP = $0.28 The standard price was $.30, so the actual price of $.28 was lower than the standard price.
|
