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Metal Shelf Company's standard cost for raw materials is \(\$ 4.00\) per pound and it is expected that each metal shelf uses two pounds of material. During 0ctober Year 2,25,000 pounds of materials are purchased from a new supplier for \(\$ 97,000\) and 13,000 shelves are produced using 27,000 pounds of materials. Which statement is a possible explanation concerning the direct materials variances? a. The production department had to use more materials since the quality of the materials was inferior. b. The purchasing manager paid more than expected for materials. c. Production workers were more efficient than anticipated. d. The overall materials variance is positive; no further analysis is necessary.

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= \$ 100,000 #tag_title# Step 2: Calculate the actual cost of materials purchased#tag_content# The actual cost is given, which is \$ 97,000. #tag_title# Step 3: Calculate the standard quantity for actual production#tag_content# Each metal shelf uses 2 pounds of material, and 13,000 shelves were produced. So, the standard quantity of material for the actual production is: Standard quantity = \(2 \times 13,000\) shelves = 26,000 pounds #tag_title# Step 4: Calculate the actual quantity used#tag_content# The actual quantity used is given, which is 27,000 pounds of materials. #tag_title# Step 5: Analyze the materials price and quantity variances#tag_content# Now we can analyze the materials price variance (MPV) and materials quantity variance (MQV): MPV = (Standard cost - Actual cost) = (\$ 100,000 - \$ 97,000) = \$ 3,000 (Favorable) MQV = (Standard quantity - Actual quantity) × Standard price = (26,000 - 27,000) × \$ 4 = -\$ 4,000 (Unfavorable) Since the materials price variance is favorable but the materials quantity variance is unfavorable, the correct statement is: _a. The production department had to use more materials since the quality of the materials was inferior._
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Step 1: Calculate standard cost for purchased materials

First, calculate the standard cost of 25,000 pounds of materials. The standard cost for raw materials is $4.00 per pound, so we can calculate the standard cost as follows: Standard cost = \(\$ 4.00 \times 25,000\) pounds

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Most popular questions from this chapter

Chapter 7

When inputs are substitutable, how can the direct materials efficiency variance be decomposed further to obtain useful information?

Chapter 7

Distinguish between a favorable variance and an unfavorable variance.

Chapter 7

(CMA, heavily adapted) Oyster Bay Surfboards manufactures fiberglass surfboards. The standard cost of direct materials and direct manufacturing labor is \(\$ 248\) per board. This includes 35 pounds of direct materials, at the budgeted price of \(\$ 3\) per pound, and 11 hours of direct manufacturing labor, at the budgeted rate of \(\$ 13\) per hour. Following are additional data for the month of July: There were no beginning inventories. 1\. Compute direct manufacturing labor variances for July. 2\. Compute the actual pounds of direct materials used in production in July. 3\. Calculate the actual price per pound of direct materials purchased. 4\. Calculate the direct materials price variance.

Chapter 7

Amalgamated Manipulation Manufacturing's (AMM) standards anticipate that there will be 3 pounds of raw material used for every unit of finished goods produced. AMM began the month of May with 5,000 pounds of raw material, purchased 15,000 pounds for \(\$ 19,500\) and ended the month with 4,000 pounds on hand. The company produced 5,000 units of finished goods. The company estimates standard costs at \(\$ 1.50\) per pound. The materials price and efficiency variances for the month of May were:$$\begin{array}{lc} \text { Price Variance } & \text { Efficiency Variance } \\ \hline 1 . \$ 3,000 \mathrm{U} & \$ 1,500 \mathrm{F} \\ 2 . \$ 3,000 \mathrm{F} & \$ 0 \\ 3 . \$ 3,000 \mathrm{F} & \$ 1,500 \mathrm{U} \\ 4.53,200 \mathrm{F} & \$ 1,500 \mathrm{U} \end{array}$$

Chapter 7

What is the key difference between a static budget and a flexible budget?

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