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Solution to topic 7 tutorial

Solution to topic 7 tutorial - S IOLUT IO N TO TOP IC 7 T U...

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SIOLUTION TO TOPIC 7 TUTORIAL TOPIC: Cost performance and reviews 10-11 The direct-material price variance is based on the quantity purchased (PQ). Deviations between the actual and standard price, which are highlighted by the price variance, relate to the purchasing function in the firm. Timely action to follow up a significant price variance is facilitated by calculating this variance as soon as possible after the material is purchased. The direct-material quantity variance is based on the amount of material used in production (AQ). The quantity variance highlights deviations between the quantity of material actually used (AQ) and the standard quantity allowed (SQ). Therefore, it makes sense to compute this variance at the time the material is used in production. 10-35 Direct Material Direct Labor Standard price or rate per unit of input... \$16 per lb \$20 per hr e Standard quantity per unit of output ....... 2.75 lbs per unit c 4 hrs per unit f Actual quantity used per unit of output... 3 lbs per unit a 3.5 hrs Actual price or rate per unit of input ....... \$14 per lb \$21 per hr Actual output ......................................... 20,000 units 20,000 units Direct-material price variance ................. \$120,000 F Direct-material quantity variance ............ \$80,000 U b Total of direct-material variances ............ \$40,000 F Direct-labor rate variance ....................... \$ 70,000 U d Direct-labor efficiency variance ............... \$200,000 F Total of direct-labor variances ................. \$130,000 F

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Explanatory notes: a. Direct-material price variance = PQ(AP – SP) \$120,000 F = PQ(\$14 – \$16) PQ = 60,000 lbs Actual quantity used = quantity purchased AQ = PQ = 60,000 lbs Actual quantity per unit of output = b. Total direct-material variance = price variance + quantity variance
\$40,000 F = \$120,000 F + quantity variance Quantity variance = \$80,000 U c. Direct-material quantity variance = SP(AQ – SQ) \$80,000 U = \$16(60,000 – SQ) SQ = 55,000 lbs Standard quantity per unit = d. Total direct-labor variance = rate variance + efficiency variance \$130,000 F = rate variance + \$200,000 F Rate variance = \$70,000 U e. AH = 20,000 units × 3.5 hrs per unit = 70,000 hrs Direct-labor rate variance = AH(AR – SR) \$70,000 U = 70,000(\$21 – SR) SR = \$20 f. Direct-labor efficiency variance = SR(AH – SH) \$200,000 F = \$20 (70,000 – SH) SH = 80,000 hrs Standard hrs per unit = 80,000 hrs/20,000 units = 4 hrs per unit 10-46

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1. Type I fertilizer: Price variance: Actual quantity purchased x actual price 5,000 pounds x \$ . 53……………………………… \$2,650 Actual quantity purchased x standard price 5,000 pounds x \$ . 50……………………………… 2,500 Direct-material price variance………………………. \$ 150 Unfavorable Quantity variance: Actual quantity used x standard price 3,700 pounds x \$ .
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