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Prepared by Diane Tanner University of North Florida

Chapter 45. Direct Material Variances. Prepared by Diane Tanner University of North Florida. Causes of Material Variances. Two causes Price Paid too much or paid less than expected for material per unit Quantity Used too much or used less than expected. Material Variances.

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Prepared by Diane Tanner University of North Florida

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  1. Chapter 45 Direct Material Variances Prepared by Diane Tanner University of North Florida

  2. Causes of Material Variances • Two causes • Price • Paid too much or paid less than expected for material per unit • Quantity • Used too much or used less than expected

  3. Material Variances • Price Variance • Computed on the entire quantitypurchased • Quantity Variance • Computed only on the quantityused

  4. Material Variances P Q A S SS A AAS p p u Actual Price X Actual Quantity Purchased Standard Price X Actual Quantity Purchased Standard Price X Actual Quantity Used Standard Price X Standard Quantity Allowed Material Price Variance Material Quantity Variance If purchases = sales

  5. Material Variances P Q A S S A A S Material Price Variance Material Quantity Variance Tells us if materials cost more or less than allowed. Tells us if too many or not enough materials were used. Total Materials Variance

  6. Material Variances Example $2,134  440 lbs = $4.85 per lb Price variance$66 favorable Quantity variance$30 favorable Turtle Town has the following direct material standard for its Turtle floats. 0.2 lb. of resin per float at $5.00 per lb. 440 lb of resin were purchased costing $2,134; and 390 lbs were used to make 1980 floats. P A $4.85 . S$5.00 S $5.00 S $5.00 × × × × QAp440 lbsAp440 lbsAu 390 lbs S 0.2 x 1980 = $2,134 = $2,200 = $1,950 = $1,980

  7. Isolation of Material Variances The material price variance is isolated at the purchase date. Why? I need it as early as possible to make product pricing or quantity changes As a purchasing manager, I need the price variancesooner so that I can better identify purchasing problems.

  8. Responsibility for Material Variances You used too much material because of poorly trained workers and shoddy equipment maintenance, and you are a lousy scheduler! You make me overnight the material making it cost more, causing unfavorable price variances. I am not responsible for this unfavorable materialquantity variance. You purchased cheapmaterial, so my peoplehad to use more of it. Production Manager Purchasing Manager

  9. Variances - Good or Bad? actual > standard Unfavorable Variance actual < standard Favorable Variance Are all favorable variances good?

  10. The End

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