Chapter 17, Problem 41P

Variable Cost Variances: Materials Purchased and Used Are Not Equal

Griffen Company makes pipe using metal. The company uses a standard costing system. Variable overhead is allocated on the basis of direct material usage (pounds). Overhead is allocated to units based on expected production of 12,000 units. Griffen maintains a materials inventory, so the amount of material used is not necessarily the same as the amount of material purchased in any one month.

The standard cost sheet for a unit of pipe follows:

August financial results show that the average purchase price of metal was $5.30 per pound. The purchase price variance $34,590 unfavorable. The variable overhead efficiency variance was 8,000 unfavorable. Good output produced totaled 15,000 units.

Required

1. a.      How many pounds of metal were purchased in August?
2. b.      What was the direct material efficiency variance in August?
3. c.       How many pounds of metal were used in August?
4. d.      Which, if either, of the direct material variances (price or efficiency) would you recommend Griffen management to investigate? Why?