Chapter 26, Problem 5E

(a)

To determine

Variances: The variances are used to calculate the find the variation in actual cost by comparing it to the standard cost. Variances normally find the difference in between cost that is actually incurred and cost which was estimated by the business.

Direct Material Variance: The variance which is used to determine the variation in the standard direct material and actual direct material is called direct material variance. It is the sum of material price variance and material quantity variance.

Material Price Variance: The variance which is used to find the changes in actual price over and above to the estimated price is called material price variance. It is the variation in actual paid for material and the estimated amount required to be paid for the material.

Material Quantity Variance: The variance which is used to compare the in the actual quantity of materials utilized in production with estimated quantity of materials material that is supposed to be used in production and helps to find variation is called material quantity variance.

To determine: Total materials, price and quantity variances.

(b)

To determine

The total price and quantity variances for material if the quantity purchased and used is 28,000 units.