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Material Variance Analysis for Carol's Cookies

Carol's Cookies produced 390,000 batches of cookies using 640,000 pounds of materials that cost $1.80 per pound, compared to expectations of 585,000 pounds at $2 per pound. This resulted in a $128,000 favorable price variance but a $78,000 unfavorable quantity variance. The price variance occurred because materials were purchased for less than expected, while the quantity variance was due to using more materials than planned during production.

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74 views2 pages

Material Variance Analysis for Carol's Cookies

Carol's Cookies produced 390,000 batches of cookies using 640,000 pounds of materials that cost $1.80 per pound, compared to expectations of 585,000 pounds at $2 per pound. This resulted in a $128,000 favorable price variance but a $78,000 unfavorable quantity variance. The price variance occurred because materials were purchased for less than expected, while the quantity variance was due to using more materials than planned during production.

Uploaded by

md. romgan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Example of material variance

Carol’s Cookies expected to use 1.5 pounds of direct materials to produce


1 unit (batch) of product at a cost of $2 per pound. Actual results are in for
last year, which indicates 390,000 batches of cookies were sold. The
company purchased 640,000 pounds of materials at $1.80 per pound and
used 624,000 pounds in production.

The materials price variance is $(128,000) favorable, and the


materials quantity variance is $78,000 unfavorable.
Note: AQP = Actual quantity of materials purchased.
AP = Actual price of materials.
AQU = Actual quantity of materials used in production.
SP = Standard price of materials.
SQ = Standard quantity of materials for actual level of activity.

*Standard quantity of 585,000 pounds = Standard of 1.5 pounds per


unit × 390,000 actual units produced and sold.

**$1,170,000 standard direct materials cost matches the flexible


budget.

$(128,000) favorable materials price variance = $1,152,000 –


$1,280,000. Variance is favorable because the actual price of $1.80 is
lower than the expected/standard (budgeted) price of $2.

$78,000 unfavorable materials quantity variance = $1,248,000 –


$1,170,000. Variance is unfavorable because the actual quantity of
materials used in production of 624,000 pounds is higher than the
expected/standard (budgeted) quantity of 585,000 pounds.

Possible causes of favorable materials price variance are


 The supplier had excess materials on hand and lowered prices
to sell off inventory;
 New suppliers entered the market, which resulted in an excess
supply of materials and lower prices;
 Carol’s Cookies’ purchasing agent is a strong negotiator and
was able to negotiate lower prices than anticipated;
 Lower-quality materials were purchased at a lower price.
Possible causes of unfavorable materials quantity variance are

 Lower-quality materials resulted in more waste and spoilage;


 New, inexperienced employees were hired, resulting in more
waste;
 Old equipment breaking down caused an increased amount of
waste.

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