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11#1

Earthern Ware

is a manufacturer of large flower pots for urban settings. The company has these standards:

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Requirement 1. Compute the direct material price variance and the direct material quantity variance. (Enter the variances as positive numbers. Enter currency amounts in the formula to the nearest cent and then round the final variance amount to the nearest whole dollar. Label the variance as favorable (F) or unfavorable (U). Abbreviations used: DM = Direct materials)

First determine the formula for the price variance, then compute the price variance for direct materials.

		(		-		)	=	DM price variance
		(		-		)	=

Determine the formula for the quantity variance, then compute the quantity variance for direct material.

		(		-		)	=	DM quantity variance
		(		-		)	=

Requirement 2. Who is generally responsible for each variance?

The

marketing

production

purchasing

sales

department is responsible for the materials price variance. The

marketing

purchasing

production

sales

department is responsible for the materials quantity variance.

Requirement 3. Interpret the variances.

The

favorable

unfavorable

materials price variance means that the actual price

Grand Ceramics'

personnel paid for resin

did not exceed

exceeded

the standard budgeted price for resin. The

favorable

unfavorable

materials quantity variance means that

Grand Ceramics'

employees used

less

more

resin than they should have to produce

1,900

pots.

Standards

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Direct materials (resin). . . . . . . . . . . . . . . . . . . . . . . . . . .	8 pounds per pot at a cost of $5.00 per pound
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3.0 hours at a cost of $16.00 per hour
Standard variable manufacturing overhead rate. . . . .	$3.00 per direct labor hour
Budgeted fixed manufacturing overhead. . . . . . . . . . .	$30,200
Standard fixed MOH rate. . . . . . . . . . . . . . . . . . . . . . . . .	$6.00 per direct labor hour (DLH)

Actual results

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Earthern Ware

allocated fixed manufacturing overhead to production based on standard direct labor hours. Last month, the company reported the following actual results for the production of

1,900

flower pots:

Direct materials. . . . . . . . . . . . . . . . . . .	Purchased 17,030 pounds at a cost of $5.30 per pound; used 16,530 pounds to produce 1,900 pots
Direct labor. . . . . . . . . . . . . . . . . . . . . . .	Worked 3.3 hours per flower pot (6,270 total DLH) at a cost of $15.00 per hour
Actual variable manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . .	$3.60 per direct labor hour for total actual variable manufacturing overhead of $22,572
Actual fixed manufacturing overhead	$29,500
Standard fixed manufacturing overhead allocated based on actual production. . . . . . . . . . . . . . . . . . . . . . .	$34,200

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