Question - 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:
Direct materials (?berglass) purchased . . . . . . . . . 1 00,000 pounds
Direct materials issued into production . . . . . . . . . 80,000 pounds
Standard pounds allowed per boat . . . . . . . . . . . 1 .5 pounds
Standard price per pound . . . . . . . . . . . . . . . . . . $7.50
Cost of ?berglass purchased . . . . . . . . . . . . . . . . $725,500
Required:
a. Calculate the actual cost per pound of ?berglass 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.