Let "AQ" = Actual Quantity of Direct Materials Issued to Production

question 173

Essay

Let "AQ" = actual quantity of direct materials issued to production, AP = actual price paid per unit of direct material purchased, SP = standard price per unit of direct material, and SP = standard quantity of direct materials allowed based on actual output for the period.
Required:
Use the above notation to develop a formula (i.e., an equation) for each of the following standard cost variances:
1. Direct materials price variance (calculated at point of production, not point of purchase).
2. Direct materials usage variance.
3. Flexible-budget (FB) variance for direct materials.
4. Joint price-quantity variance for direct materials.

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Definitions:

Equivalent Units

The product of the number of partially completed units and their percentage of completion with respect to a particular cost. Equivalent units are the number of complete whole units that could be obtained from the materials and effort contained in partially completed units.

Conversion Costs

The combined costs of direct labor and manufacturing overheads, representing the costs to convert materials into finished goods.

Weighted-Average Method

A cost accounting method that averages the costs of all goods available for sale during the period, regardless of when they were acquired or produced.

First-In, First-Out Method

A method of inventory valuation where the oldest inventory items are recorded as sold first, with the most recent costs remaining in inventory.