To illustrate variance analysis, refer to the standard cost card for Speeds, Inc.’s jogging suit. The following data are for last month’s production:
- Number of suits completed 5,000 units
- Cost of material purchased
- (20,000 yds. @ $5.40) $108,000
- Yards of material used 20,000 yds.
Using these data and the data from the standard cost card, the material price and quantity variances are:
5,000 suits ´ 3.5 yds. per suit = 17,500 yds.
F = Favorable
U = Unfavorable
The direct material variances can also be computed as follows:
MATERIAL PRICE VARIANCE:
MPV = AQ (AP — SP)
= 20,000 yds. ($5.40/yd. — $6.00 per yd.) = $12,000 F
The material price variance should be recorded at the time materials are purchased. This permits:
Early recognition of the variance.
Recording materials at standard cost.
MATERIAL QUANTITY VARIANCE:
MQV = SP (AQ — SQ)
= $6.00 per yd. (20,000 yds. — 17,500 yds.) = $15,000 U