Question

Required information

Hart Company made 3,260 bookshelves using 22,260 board feet of wood costing $298,284. The company's direct materials standards for one bookshelf are 8 board feet of wood at $13.30 per board foot.
AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price
1) Compute the direct materials price and quantity variances and classify each as favorable or unfavorable.
2) Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Production= 3,260 bookshelves using 22,260 board feet of wood costing $298,284.

The company's direct materials standards for one bookshelf are 8 board feet of wood at $13.30 per board foot.

First, we need to calculate the direct material price and quantity variance, using the following formulas:

Direct material price variance= (standard price - actual price)*actual quantity

actual price= 298,284/22,260= $13.4

Direct material price variance= (13.3 - 13.4)*22,260

Direct material price variance= $2,226 unfavorable

Direct material quantity variance= (standard quantity - actual quantity)*standard price

standard quantity= 8*3,260= 26,080

Direct material quantity variance= (26,080 - 22,260)*13.3

Direct material quantity variance= $50,806 favorable

Finally, we need to calculate which of the variations should be looked at:

Price= (13.4/13.3)-1]*100= 0.75% is between the standards

Quantity= (22,260/26,080)-1]*100= 14.65% It should be studied further.