Monday, February 18, 2008

Calculate Material Quantity Variance

How to Calculate Material Quantity Variance Example Problem

A beer manufacturer uses a standard costing system to assemble costs with the production of beer. The material standards of each bottle of beer produced are 0.8 liters at a standard cost of $2.35 per liter. During the month of August, the beer manufacturer purchased 75,000 liters of materials at a total cost of $171,000. It used 64,000 of these liters to produce 71,500 bottles of beer.

What is the beer manufacturer’s materials quantity variance for the month of August?

DM quantity variance = Standard DM Price * (DM Used in Production – DM allowed for output level)

= $2.35 (64,000 – 57,300)
= $15,745

71,500 bottles produced x 0.8 liters/bottle = 57,300 liters allowed

Is the variance favorable or unfavorable?

Unfavorable because more material was used than needed given our output

Explanation for the Unfavorable Variance

- inferior input was purchased from supplier
- unskilled workers wasted material during production
- inventory loss or inventory spoilage


Additional Accounting Information on Material Quantity Variances:
Calculating Accounting Variance Problem

2 comments:

Anonymous said...

Isn't 75,100 X .8 = 57,200, and not 57,300?

Anonymous said...

Correction to prior comment: Make that 71,500 x .8 = 57,200

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