Question 11.3: A tire manufacturer has a standard quantity of 3 kilograms o...
A tire manufacturer has a standard quantity of 3 kilograms of fiberglass cord per automobile tire. The standard price is $1 per kilogram. During the month, the purchasing manager bought 98,000 kilograms of fiberglass cord for $102,000. The plant used 95,000 kilograms of fiberglass cord to manufacture 30,000 tires during the month. What are the material price and quantity variances for the fiberglass cord?
The material price variance is calculated at the time of purchase. The actual purchase price per kilogram is $102,000/98,000, or $1.04082 per kilogram. Therefore, the material price variance is ($1.04082 per kg. – $1 per kg.) × 98,000 kg., or $4,000 unfavorable. The material quantity variance can only be calculated when the material is used. In this case, 95,000 kilograms were used. But (3 kg. per tire × 30,000 tires), or 90,000 kilograms should have been used according to the standard. The material quantity variance is (95,000 kg. – 90,000 kg.) × $1 per kg., or $5,000 unfavorable.