Ceelo Company purchased (at a cost of $22,440) and used 3,300 pounds of materials during May. Ceelo’s standard cost of materials per unit produced is based on 1 pounds per unit at a cost $7.00 per pound. Production in May was 3,240 units. (a) Compute the total, price, and quantity variances for materials. (Round answers to 0 decimal places, e.g. 125.)
(b)Assume Ceelo also had an unfavorable labor quantity variance. What is a possible scenario that would provide one cause for the variances computed in (a) and unfavorable labor quantity variance?

Question

05-12-2019
Business

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Ceelo Company purchased (at a cost of $22,440) and used 3,300 pounds of materials during May. Ceelo’s standard cost of materials per unit produced is based on 1 pounds per unit at a cost $7.00 per pound. Production in May was 3,240 units. (a) Compute the total, price, and quantity variances for materials. (Round answers to 0 decimal places, e.g. 125.)
(b)Assume Ceelo also had an unfavorable labor quantity variance. What is a possible scenario that would provide one cause for the variances computed in (a) and unfavorable labor quantity variance?

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Answer:

a. Total material cost variance: $

Standard material cost ($7 x 3,240) = 22,680

Less: Actual material cost = 22,440

Total material cost variance 240(F)

Material price variance = (SP - AP) x Actual quantity purchased

= ($7 - $6.80) x 3.300

= $660(F)

Material quantity variance = (SQ - AQU) x standard price

= (3,240 - 3,300) x $7

= $420(A)

b. Favourable material price variance could arise as a result of higher bargaining power of the company

Unfavourable material usage variance could be as a result of substandard material

Unfavourable labour quantity variance may arise as a result of use of unskilled labour

Explanation: Total material cost variance is the difference between standard material cost and actual material cost.

Material price variance is the difference between standard price and actual price multiplied by actual quantity purchased. Actual price is obtained by dividing the actual material cost by the actual quantity purchased.

Material quantity variance is the difference between standard quantity and actual quantity used multiplied by standard price. Standard quantity is obtained by multiplying the standard quantity per unit by actual production for the period.