Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 44

Direct material variances —solving for price and usage variances

Fiberworks Company is a manufacturer of fiberglass toy boats. The company has recently implemented a standard cost system and has designed the system to isolate variances as soon as possible. During the month of August, the following results were reported for the production of 50,000 toy boats:

Direct materials (fiberglass) purchased	100,000 pounds
Direct materials issued into production	80,000 pounds
Standard pounds allowed per boat	1.5 pounds
Standard price per pound	$7.50
Cost of fiberglass purchased	$725,500

Required:

a. Calculate the actual cost per pound of fiberglass purchased during August.

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b. Calculate the direct materials purchase price variance for August.

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c. Calculate the direct materials usage variance for August.

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d. Comment on calculating the material price variance based on pounds purchased rather than pounds issued into production.

Step 1 of 5

Computations of variables to the direct material variances:

By extracting the information: