Question:
Direct material variances-solving for price and usage variances Fiber works Company is a manufacturer of fiberglass toy boats. The company has recently implemented a standard cost system and has designed the system to isolate variances as soon as possible. During the month of August, the following results were reported for the production of 50,000 toy boats:
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Direct materials (fiberglass) purchased
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100,000 pounds
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Direct materials issued into production
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80,000 pounds
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Standard pounds allowed per boat
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1.5 pounds
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Standard price per pound
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$7.50
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Cost of fiberglass purchased
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$725,500
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Required:
a. Calculate the actual cost per pound of fiberglass purchased during August.
b. Calculate the direct materials purchase price variance for August.
c. Calculate the direct materials usage variance for August.
d. Comment on calculating the material price variance based on pounds purchased rather than pounds issued into production.