From the course: Accounting Foundations: Managerial Accounting
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Variances in materials price and quantity
From the course: Accounting Foundations: Managerial Accounting
Variances in materials price and quantity
- Using standard cost to compute variances is an effective method of controlling the cost of direct materials. To illustrate the computation of the price and quantity variances for direct materials, let's get into the boating business, we're going to manufacture a fishing boat. The standard costs for direct materials and direct labor costs for this fishing boat are shown here. The boat requires 100 board feet of wood and 40 board feet of fiberglass. The standard cost for wood is $10 per foot, and it's $5 per foot for fiberglass. In this topic, we're only going to examine materials variances. We will use this example as well when we get to analyzing labor variances in the next section. Now, the company manufactured 100 boats during the period in question and used the following direct materials to manufacture these boats. 10,150 board feet of wood at a cost of $9 and 60 cents per foot. Turns out the company also…
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