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.
- Compute the standard cost of wood required to manufacture 4,000 chairs. Also compute the difference between actual cost incurred and standard cost.
- Compute materials price and quantity variance.
(1). Standard cost of wood:
10,000* feet × $3.60
*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