Exercise-1 (Computation of materials price and quantity variance)

Delta Woods Inc., manufactures wood products for the use in small and medium size offices. One of its products is a chair. Last month Delta manufactured 4,000 chairs for which company purchased and used 11,000 feet of wood. The total cost of 11,000 feet of wood was $37,400.

According to direct materials price and quantity standards, one chair requires 2.5 feet of wood at a cost of $3.60.

Required:

1. Compute the standard cost of wood needed to manufacture 4,000 chairs.
2. Compute direct materials price and quantity variance for the last month.

Solution:

(1). Standard cost of wood:

Standard quantity allowed × Standard price
10,000* feet × $3.60
= $36,000

*4,000 chairs × 2.5 feet

(2). Computation of direct materials variances

a. Direct materials price variance:

F = Favorable

b. Direct materials quantity variance:

U = Unfavorable