Albrecht 19.pdf - Marriott School

76154_23_ch19_p942-1006.qxd 3/1/07 3:35 PM Page 952
952 Part 6 Control in a Management Accounting System
Direct materials purchased
Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,800 feet at $9.60 per foot
Fiberglass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400 feet at $5.20 per foot
Direct materials used
Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,150 feet
Fiberglass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,925 feet
Boats produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Keep in mind throughout the following discussion that the standard costs in Exhibit 3
specify that wood materials should cost $10 per foot, fiberglass materials should cost
$5 per foot, and each boat produced should require 100 feet of wood and 40 feet of fiberglass.
(Obviously, many different kinds of raw materials are required to make boats. To
keep the example simple, we are assuming only two materials are used.)
materials price
variance
The extent to which the
standard price varies from
the actual price for the
quantity of materials purchased
or used; computed
by multiplying the
difference between the
standard and actual
prices by the quantity purchased
or used.
Materials Price Variance The materials price variance reflects the extent
to which the actual price varies from the standard price for the actual quantity
of materials purchased or used. Although the price variance can be calculated
either when materials are purchased or when they are used, it is generally best
to isolate the variance at purchase and report the variance to the purchasing manager
who has responsibility for controlling the purchase price. If management
waits until the materials are used before calculating variances, the information
needed by the purchasing managers to take corrective action is delayed.
In calculating the materials price variance, the standard price per unit of materials
should reflect the final, delivered cost of materials, net of any discounts taken.
For example, Sunbird Boat Company may have determined its standard materials
price per foot of wood as follows:
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.84
Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.17
Handling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.04
Less purchase discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05)
Standard wood materials cost per foot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.00
The standard cost above assumes that the materials were purchased in certain lot sizes
(for example, 100-foot quantities) and delivered a certain way (by rail, for example).
Handling costs and purchase discounts have also been included.
Assume that variances are determined when materials are purchased. Based on the
fact given above that 9,800 feet of wood are purchased by Sunbird during the year, the
price variance for wood is computed as follows:
Materials Price Variance
(based on quantity purchased)
AQ AP
(Actual quantity of input Actual price)
AQ SP
(Actual quantity of input Standard price)
9,800 feet $9.60 $94,080 9,800 feet $10.00 $98,000
Materials price variance
($10.00 $9.60) 9,800 feet $3,920 F
This variance indicates that the company spent $3,920 less than the total standard
cost for the wood purchased. Because less money was spent than the standard cost, the