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Managerial Accounting: The Corners...

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

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BuyFindarrow_forward

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 10-34 and 10-35:

Young Inc. produces plastic bottles. Production of 16-ounce bottles has a standard unit quantity of 0.45 ounce of plastic per bottle. During the month of June, 240,000 bottles were produced using 110,000 ounces of plastic. The actual cost of plastic was $0,042 per ounce, and the standard price was $0,045 per ounce. There is no beginning or ending inventories of plastic.

10-35 Materials Variances

Refer to the information for Young 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 $0.045 for standard price, 110,000 ounces for actual quantity and $0.042 for actual price in the above formula.

Material Price Variance=(($0.045×110,000 ounces)($0.042×110,000 ounces))=$330(F)

Therefore, the material price variance by columnar approach is $330 (F).

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 $0.045 for standard price, 110,000 ounces for actual quantity and 108,000 ounces in the above formula.

Material Usage Variance=(($0.045×110,000 ounces)($0.045×108,000 ounces))=$90(U)

Therefore, the material usage variance by columnar approach is $90(U)

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