Tharaldson Corporation makes a product with the following standard costs:

Tharaldson Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost Per Unit
Direct materials		5.7	ounces	$	6.00	per ounce	$	34.20
Direct labor		0.8	hours	$	11.00	per hour	$	8.80
Variable overhead		0.8	hours	$	6.00	per hour	$	4.80

The company reported the following results concerning this product in June.

 

Originally budgeted output		3,900	units
Actual output		3,500	units
Raw materials used in production		22,500	ounces
Purchases of raw materials		20,600	ounces
Actual direct labor-hours		6,000	hours
Actual cost of raw materials purchases	$	42,400
Actual direct labor cost	$	13,900
Actual variable overhead cost	$	3,950

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The materials quantity variance for June is:

Multiple Choice

• $5,249 U
• $5,249 F
• $15,300 F
• $15,300 U

  Correct

Explanation

SQ = 3,500 units × 5.7 ounces per unit = 19,950 ounces

Materials quantity variance = (AQ – SQ) × SP

= (22,500 ounces − 19,950 ounces) × $6.00 per ounce

= (2,550 ounces) × $6.00 per ounce

= $15,300 U

Doogan Corporation makes a product with the following standard costs:

Doogan Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		2.0	grams	$	7.00	per gram
Direct labor		1.4	hours	$	10.00	per hour
Variable overhead		1.4	hours	$	4.00	per hour

The company produced 4,800 units in January using 10,320 grams of direct material and 2,300 direct labor-hours. During the month, the company purchased 10,890 grams of the direct material at $7.20 per gram. The actual direct labor rate was $10.75 per hour and the actual variable overhead rate was $3.90 per hour.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The materials quantity variance for January is:

Multiple Choice

• $5,184 U
• $5,184 F
• $5,040 F
• $5,040 U

  Correct

Explanation

SQ = 4,800 units × 2.0 grams per unit = 9,600 grams

Materials quantity variance = (AQ – SQ) × SP

= (10,320 grams − 9,600 grams) × $7.00 per gram

= (720 grams) × $7.00 per gram

= $5,040 U

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic.

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,100 helmets, using 2,201 kilograms of plastic. The plastic cost the company $16,728.

According to the standard cost card, each helmet should require 0.63 kilograms of plastic, at a cost of $8.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,100 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 3,100 helmets?

3. What is the materials spending variance?

4. What is the materials price variance and the materials quantity variance?

 

Explanation

1.

Number of helmets produced (a)	3,100
Standard kilograms of plastic per helmet (b)	0.63
Standard quantity of kilograms allowed (a) × (b)	1,953

2.

Standard quantity of kilograms allowed (a)		1,953
Standard cost per kilogram (b)	$	8.00
Standard cost allowed for actual output (a) × (b)	$	15,624

3.

Actual cost incurred (given) (a)	$	16,728
Total standard cost allowed (b)	$	15,624
Materials spending variance (a) − (b)	$	1,104	U

4.

Actual Quantity of Input, at Actual Price (AQ × AP)			Actual Quantity of Input, at Standard Price (AQ × SP)			Standard Quantity Allowed for Output, at Standard Price (SQ × SP)
$16,728			2,201 kilograms × $8.00 per kilogram = $17,608			1,953 kilograms* × $8.00 per kilogram = $15,624
	Materials price variance, $880 F			Materials quantity variance, $1,984 U
	Spending Variance, $1,104 U

*3,100 helmets × 0.63 kilograms per helmet = 1,953 kilograms

Thanks