Material Variances

Hanson Inc. has the following direct material

standard to manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week 1,700 pounds of material were
purchased and used to make 1,000 Zippies.
The material cost a total of $6,630.
 Pop Quiz

What is the actual price per pound

paid for the material?

a. $4.00 per pound.

b. $4.10 per pound.
c. $3.90 per pound.
d. $6.63 per pound.
 Pop Quiz
Hanson’s material price variance (MPV)
for the week was:

a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
 Pop Quiz
The standard quantity of material that
should have been used to produce
1,000 Zippies is:

a. 1,700 pounds.
b. 1,500 pounds.
c. 2,550 pounds.
d. 2,000 pounds.
 Pop Quiz
Hanson’s material quantity variance
(MQV) for the week was:

a. $170 unfavorable.
b. $170 favorable.
c. $800 unfavorable.
d. $800 favorable.
 Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity
× × ×
Actual Price Standard Price Standard Price
1,700 lbs. 1,700 lbs. 1,500 lbs.
× × ×
$3.90 per lb. $4.00 per lb. $4.00 per lb.
$6,630 $ 6,800 $6,000

Price variance Quantity variance

$170 favorable $800 unfavorable
 Material Variances

The price variance is

Hanson purchased and
computed on the entire
used 1,700 pounds. How
quantity purchased.
are the variances
computed if the amount The quantity variance is
purchased differs from the computed only on the
amount used? quantity used.
 Material Variances
Hanson Inc. has the following material standard to
manufacture one Zippy:
1.5 pounds per Zippy at $4.00 per pound
Last week 2,800 pounds of material were
purchased at a total cost of $10,920, and 1,700
pounds were used to make 1,000 Zippies.
 Material Variances
Actual Quantity Actual Quantity
Purchased Purchased
× ×
Actual Price Standard Price
2,800 lbs. 2,800 lbs.
× ×
$3.90 per lb. $4.00 per lb.
$10,920 $11,200

Price variance increases

Price variance because quantity purchased
$280 favorable increases.
 Material Variances
Actual Quantity
Used Standard Quantity
× ×
Standard Price Standard Price
1,700 lbs. 1,500 lbs.
× ×
$4.00 per lb. $4.00 per lb.
$6,800 $6,000
Quantity variance is
unchanged because actual
and standard quantities are Quantity variance
unchanged. $800 unfavorable
 Labor Variances

Hanson Inc. has the following direct labor

standard to manufacture one Zippy:
1.5 standard hours per Zippy at $10.00 per direct labor
hour

Last week 1,550 direct labor hours were

worked at a total labor cost of $15,810 to make
1,000 Zippies.
 Pop Quiz
What was Hanson’s actual rate (AR)
for labor for the week?

a. $10.20 per hour.

b. $10.10 per hour.
c. $9.90 per hour.
d. $9.80 per hour.
 Pop Quiz
Hanson’s labor rate variance (LRV)
for the week was:

a. $310 unfavorable.
b. $310 favorable.
c. $300 unfavorable.
d. $300 favorable.
 Pop Quiz
The standard hours (SH) of labor that
should have been worked to produce
1,000 Zippies is:

a. 1,550 hours.
b. 1,500 hours.
c. 1,700 hours.
d. 1,800 hours.
 Pop Quiz
Hanson’s labor efficiency variance (LEV)
for the week was:

a. $510 unfavorable.
b. $510 favorable.
c. $500 unfavorable.
d. $500 favorable.
 Labor Variances Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
1,550 hours 1,550 hours 1,500 hours
× × ×
$10.20 per hour $10.00 per hour $10.00 per hour
$15,810 $15,500 $15,000

Rate variance Efficiency variance

$310 unfavorable $500 unfavorable
 Pop Quiz
Hanson Inc. has the following variable
manufacturing overhead standard to
manufacture one Zippy:
1.5 standard hours per Zippy at $3.00 per
direct labor hour

Last week 1,550 hours were worked to make

1,000 Zippies, and $5,115 was spent for
variable manufacturing overhead.
 Pop Quiz
Hanson’s spending variance (VOSV) for
variable manufacturing overhead for
the week was:
a. $465 unfavorable.
b. $400 favorable.
c. $335 unfavorable.
d. $300 favorable.
 Pop Quiz
Hanson’s efficiency variance (VOEV) for
variable manufacturing overhead for the
week was:
a. $435 unfavorable.
b. $435 favorable.
c. $150 unfavorable.
d. $150 favorable.
 Quick Check 
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
1,550 hours 1,550 hours 1,500 hours
× × ×
$3.30 per hour $3.00 per hour $3.00 per hour
= $5,115 = $4,650 = $4,500

Spending variance Efficiency variance

$465 unfavorable $150 unfavorable
 Advantages of Standard Costs
Management by Promotes economy
exception and efficiency

Advantages
Enhances
Simplified responsibility
bookkeeping accounting
 Potential Problems with Standard
Costs
Emphasizing standards
Favorable
may exclude other variances may
important objectives. Potential be misinterpreted.
Problems

Standard cost Emphasis on

reports may negative may
not be timely. impact morale.