Page 40 - Managerial Accounting-MGT 145

Module 7: Variance Analysis
Module 7. REQUIREMENT

Materials Variance Analysis:

The Schlosser Lawn Furniture Company uses 12 meters of
aluminum pipe at P 0.80 per meter as standard for the
production of its Type A lawn chair.

During one month's operations, 100,000 meters of the pipe
were purchased at $0.78 a meter, and 7,200 chairs were
produced using 87,300 meters of pipe. The materials price
variance is recognized when materials are purchased.

Required:
Compute for Materials Purchase Price & Quantity Variances.

Solution Meters of pipe Unit Cost Amount
Actual quantity purchased 100,000 P 0.78 actual P78,000
Standard quantity purchased 100,000 P 0.80 standard P80,000
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Materials purchase 100,000 (P 0.02) P (2,000)
price variance favorable favorable
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Actual quantity used 87,300 0.80 standard P69,840
Standard quantity allowed 86,400 0.80 standard P69,120
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Materials quantity variance 900 0.8 P 720 Unfavorable
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