Question

Hanson inc. has the following direct material standard to manufacture one widget: 1.5 pounds per widget at $4.00 per pound last week, 1,900 pounds of material were purchased and 1,650 pounds of material was used to make 1,000 widgets. the material cost a total of $7,220. note: the quantity purchased was not the same as quantity used. you will need to use quantity purchased as "actual quantity" for the price variance. you will need to use quantity used as "actual quantity" for the quantity variance. a. compute the materials price variance b. compute the materials quantity variance

Answer 1

Hanson Inc. had a materials price variance of $380 favorable, as the actual price per pound of material was $3.80 compared to the standard $4.00, and a materials quantity variance of $600 unfavorable because they used more material than the standard for producing 1,000 widgets.

Step-by-step explanation:

Calculating Material Variances

To help understand how to calculate material variances, we will examine the case of Hanson Inc. and their manufacturing process for widgets. Let's determine the materials price variance and the materials quantity variance for the company based on the given information.

Material Price Variance (MPV)

The Material Price Variance is calculated using the difference between the standard cost and the actual cost of materials purchased. This can be computed using the following formula:

Material Price Variance = (Standard Price per Unit - Actual Price per Unit) × Actual Quantity Purchased

Given the standard price of $4.00 per pound and the actual purchase of 1,900 pounds costing $7,220 in total, we calculate the actual price per pound as follows:

Actual Price = Total Cost / Quantity Purchased = $7,220 / 1,900 = $3.80 per pound

Thus, the MPV is:

MPV = ($4.00 - $3.80) × 1,900 = $380 Favorable

Material Quantity Variance (MQV)

To compute the Material Quantity Variance, we use the amount of material that should have been used for actual production and compare it to the actual amount used. The formula is:

Material Quantity Variance = (Standard Quantity for Actual Production - Actual Quantity Used) × Standard Price per Unit

Assuming the standard quantity is 1.5 pounds per widget, for 1,000 widgets, that equals:

Standard Quantity = 1.5 pounds/widget × 1,000 widgets = 1,500 pounds

With 1,650 pounds actually used, the MQV is:

MQV = (1,500 - 1,650) × $4.00 = $600 Unfavorable

Conclusion

Hanson Inc. experienced a favorable price variance due to the material costing less than anticipated but faced an unfavorable quantity variance as more material was used than the standard required.