Direct material variances solving for price and usage variances. Fiberworks 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 May, the following results were reported for the production of 100,000 toy boats:
Direct materials (fiberglass) purchased . . . . . . . 200,000 pounds
Direct materials issued into production . . . . . . . 180,000 pounds
Standard pounds allowed per boat . . . . . . . . . . . 1.75 pounds
Standard price per pound . . . . . . . . . . . . . . . . . . $7.00
Cost of fiberglass purchased . . . . . . . . . . . . . . . . $1,420,000
Required:
a. Calculate the actual cost per pound of fiberglass purchased during May.
b. Calculate the direct materials purchase price variance for May.
c. Calculate the direct materials usage variance for May.
d. Comment on calculating the material price variance based on pounds purchased rather than pounds issued into production.