Question

Ruby Company produces a chair that requires 5 yards of material per unit. The standard price of one yard of material is $7.50. During the month, 8,400 chairs were manufactured, using 43,700 yards at a cost of $7.30 per yard. Enter favorable variances as negative numbers.
Determine the following:
a. Price variance $ Favorable or not b. Quantity variance $ Favorable or not c. Cost variance $ Favorable or not

Answer 1

The price variance will be favorable, quantity variance will be unfavorable, cost variance will be unfavorable.

Material price variance:

Formula to be used:

(standard price of one yard - price of yard at which chairs were manufactured) x yards

(standard price-actual price) actual quantity)

          (7.5-7.30)43700  =  8740    (favourable)

Price variance is calculated by multiplying the number of actual units actually purchased by the actual unit cost of the item less its standard cost.

Material Quantity Variance:

Formula to be used: (standard quantity-actual quantity) standard rate

          (8400*5-43700)*7.5 = 12750   (unfavorable )

Cost variance

Formula to be used: (standard cost-actual cost)

         (8400*5*7.5-43700*7.3) = 4010      (unfavorable )      

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