Mini-Exercise 15-3 (Algo) Direct Material Variances LO 15-4, 15-5

Acme Company's production budget for August is 23,000 units and includes the following component unit costs:
- Direct materials: [tex]$\$[/tex]9.00$
- Direct labor: [tex]$\$[/tex]11.00$
- Variable overhead: [tex]$\$[/tex]5.80$

Budgeted fixed overhead is [tex]$\$[/tex]49,000$. Actual production in August was 24,075 units. Actual unit component costs incurred during August include:
- Direct materials: [tex]$\$[/tex]10.00$
- Direct labor: [tex]$\$[/tex]10.00$
- Variable overhead: [tex]$\$[/tex]6.80$

Actual fixed overhead was [tex]$\$[/tex]52,200[tex]$. The standard direct material cost per unit consists of 9 pounds of raw material at $[/tex]\[tex]$1.00$[/tex] per pound. During August, 267,500 pounds of raw material were used that were purchased at [tex]$\$[/tex]0.90$ per pound.

Required:
Calculate the materials price variance and materials usage variance for August.
Note: Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).

\begin{tabular}{|l|l|l|}
\hline
Material price variance & & [tex]$F$[/tex] \\
\hline
Material usage variance & & \\
\hline
\end{tabular}

Alright, let's work through the exercise step-by-step to calculate the material price variance (MPV) and material usage variance (MUV) for August.

### 1. Data Provided:

1. Budgeted production: 23,000 units
2. Actual production: 24,075 units
3. Standard cost per pound of direct material: $1.00
4. Actual cost per pound of direct material: $0.90
5. Pounds of raw material used: 267,500 pounds
6. Standard amount of raw material required per unit: 9 pounds

### 2. Material Price Variance (MPV):

The Material Price Variance is calculated using the formula:
[tex]\[ MPV = (Standard \ Cost \ per \ Pound - Actual \ Cost \ per \ Pound) \times Pounds \ Used \][/tex]

Substituting the given values:
[tex]\[ MPV = (1.00 - 0.90) \times 267,500 \][/tex]
[tex]\[ MPV = 0.10 \times 267,500 \][/tex]
[tex]\[ MPV = 26,750 \][/tex]

Since the actual cost per pound is less than the standard cost per pound, the variance is favorable.

Thus, the Material Price Variance (MPV) is $ 26,750 $ and the effect is "F" (favorable).

### 3. Material Usage Variance (MUV):

The Material Usage Variance is calculated using the formula:
[tex]\[ MUV = (Standard \ Pounds \ Required - Actual \ Pounds \ Used) \times Standard \ Cost \ Per \ Pound \][/tex]

First, we need to compute the standard pounds required for the actual production:
[tex]\[ Standard \ Pounds \ Required = Actual \ Production \times Standard \ Pounds \ Per \ Unit \][/tex]
[tex]\[ Standard \ Pounds \ Required = 24,075 \times 9 \][/tex]
[tex]\[ Standard \ Pounds \ Required = 216,675 \][/tex]

Now we can find the MUV:
[tex]\[ MUV = (216,675 - 267,500) \times 1.00 \][/tex]
[tex]\[ MUV = (-50,825) \times 1.00 \][/tex]
[tex]\[ MUV = -50,825 \][/tex]

Since the actual pounds used exceed the standard pounds required, the variance is unfavorable.

Thus, the Material Usage Variance (MUV) is $ -50,825 $ and the effect is "U" (unfavorable).

### Final Results:

[tex]\[ \begin{array}{|l|c|c|} \hline \text{Material Price Variance} & 26,750 & \text{F} \\ \hline \text{Material Usage Variance} & -50,825 & \text{U} \\ \hline \end{array} \][/tex]

So, the Material Price Variance is [tex]$ 26,750 $[/tex] (Favorable) and the Material Usage Variance is [tex]$ -50,825 $[/tex] (Unfavorable).