Chapter 10, Problem 70P

### 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
308 views

# Botella Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles. The following standards for producing one case of bottles have been established:During December, 78,000 pounds of materials were purchased and used in production. There were 15,000 cases produced, with the following actual prime costs:Required: 1. Compute the materials variances. 2. Compute the labor variances. 3. CONCEPTUAL CONNECTION What are the advantages and disadvantages that can result from the use of a standard costing system?

1.

To determine

Calculate the value of material price variance and material usage variance.

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:

Material Price Variance=[Actual Cost(Standard Price×Actual Quantity)]

Substitute $74,000 for actual cost, 78,000 units for actual quantity and$0.95 for standard price in the above formula.

Material Price Variance=$74,000($0.95×78,000)=$100(F) Therefore, the material price variance is$100(F).

Use the following formula to calculate material usage variance:

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

Substitute \$0

2.

To determine

Calculate the value of labor rate variance and labor efficiency variance.

3.

To determine

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