Chapter 10, Problem 24BEA

### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Chapter
Section

### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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# Use the following information to complete Brief Exercises 10-23 and 10-24:Krumple Inc. produces aluminum cans. Production of 12-ounce cans has a standard unit quantity of 4.7 ounces of aluminum per can. During the month of April, 450,000 cans were produced using 1,875,000 ounces of aluminum. The actual cost of aluminum was $0.10 per ounce and the standard price was$0.08 per ounce. There are no beginning or ending inventories of aluminum.10-24 Materials VariancesRefer to the information for Krumple Inc. above.Required:Calculate the materials price and usage variances using the columnar and formula approaches.

To determine

Compute the value of material price variance and usage variance with the help of columnar and formula approach.

Explanation

Variance:

The amount obtained when actual cost is deducted from budgeted cost is known as variance. Variance is calculated to find whether the cost is over applied or under applied.

Use the following formula to calculate material price variance with the help of columnar approach:

Material Price Variance=((Standard Price×Actual Quantity)(Actual Price×Actual Quantity))

Substitute $0.08 for standard price, 1,875,000 ounces for actual quantity and$0.10 for actual price in the above formula.

Material Price Variance=(($0.08×1,875,000 ounces)($0.10×1,875,000 ounces))=$37,500(U) Therefore, the material price variance by columnar approach is$37,500 (U).

Use the following formula to calculate material usage variance with the help of columnar approach:

Material Usage Variance=((Standard Price×Actual Quantity)(Standard Price×Standard Quantity1))

Substitute $0.08 for standard price, 1,875,000 ounces for actual quantity and 2,115,000 ounces for standard quantity in the above formula. Material Usage Variance=(($0.08×1,875,000 ounces)($0.08×2,115,000 ounces))=$19,200(F)

Therefore, the material usage variance by columnar approach is \$19,200 (F)

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