Using the formulas to calculate the variances would work like this

# Using the formulas to calculate the variances would work like this

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Using the formulas to calculate the variances would work like this:  Direct materials price variance: \$3,000 F = [(60,000 × \$1.05) – (60,000 × \$1.10)] or 60,000(\$1.05 - 1.10) \$3,000F = \$63,000 - \$66,000 or 60,000 × \$0.05 Direct materials quantity variance: \$165 U = [(60,000 × \$1.10) - ((13,300 × 4.5) × \$1.10)] or \$1.10(60,000 - (13,300 × 4.5)) (\$165 U = (\$66,000 - (59,850 × \$1.10)) or \$1.10(60,000 - 59,850) \$165 U = \$66,000 - 65,835 or \$1.10 × 150 Once the variances are calculated, management completes the analysis by obtaining explanations  for why the variances occurred. For example, a question raised is “Why did materials cost less than  planned?” As an answer, management may learn there was a price decrease, or the direct materials

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Unformatted text preview: were acquired from another source, or lower quality materials were obtained. The explanations for price variances must relate to the cost of the direct materials, not the quantity of the materials used. Similarly, the reasons for the quantity variance need to relate to the amount of materials used, not the price paid for the materials. Reasons for a quantity variance could be more waste or scrap than was planned, or that lower quality materials were used, or less skilled workers were hired or used on the production line, or machine problems occurred that damaged materials....
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## This note was uploaded on 11/16/2011 for the course ACCT 2310 taught by Professor Staff during the Spring '09 term at Texas State.

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Using the formulas to calculate the variances would work like this

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