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:**

- 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.

## 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

## Comment: