Delta Woods Inc., manufactures wood products that are used in small and medium size offices. One of the products is a chair.

Last month Delta manufactured 4,000 chairs. The company purchased and used 11,000 feet of wood. The total cost of 11,000 feet of wood was $37,400.

According to direct materials price and quantity standards, one chair requires 2.5 feet of wood at a cost of $3.60.

Required:

  1. Compute the standard cost of wood required to manufacture 4,000 chairs. Also compute the difference between actual cost incurred and standard cost.
  2. Compute materials price and quantity variance.

Solution:

(1). Standard  cost of wood:

10,000* feet × $3.60

= $36,000

*4,000 chairs × 2.5 feet

According to standards, the wood costing $36,000 should have been used to manufacture 4,000 chairs. But company used wood costing $37,400 to manufacture 4,000 chairs. There is a difference of $1,400 (unfavorable materials cost variance). Following is the break up of this difference:

(2).  Computation of material variances:

Actual quantity of materials purchased at actual price $37,400
Actual quantity of materials purchased at standard price $39,600*
———
Materials price variance $2,200 F
———
Actual quantity of materials used at standard price $39,600
Standard quantity of materials allowed at standard price $36,000
———
Materials quantity variance $3,600 U
———
F = Favorable
U = Unfavorable

*11,000 feet × $3.60 = $39,600

Net materials cost variance = $3,600 U – $2,200F = $1,400 U

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