Chapter IE, Problem 1E

Activity Variance, Spending Variance, Materials Price Variance, Materials Quantity Variance LO9—1, 9—2, LO9—3, LO10—1

Southside Pizzeria wants to improve its ability to manage the ingredient costs associated with making and selling its pizzas. For the month of June, the company plans to make 1,000 pizzas. It has created a planning budget that includes a cost formula for mozzarella cheese of $2.40 per pizza At the end of June, Southside actually sold 1,100 pizzas, and the actual cost of the cheese that it used during the month was $2,632.

Required:

1. What is the mozzarella cheese activity variance for June?
2. What as the mozzarella cheese spending variance for June?
3. Assume that the company establishes a price standard of S0.30 per ounce for mozzarella cheese and a quantity standard of eight ounces of cheese per pizza. Also, assume that Southside actually used 9,400 ounces of cheese during the month to make 1,100 pizzas.
1. What is the materials price variance for mozzarella cheese for June?
2. What is the materials quant y variance for mozzarella cheese for June?
3. What is the materials spending variance for mozzarella cheese for June?

To determine

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

The activity variance for June of Mo cheese.

Answer to Problem 1E

The activity variance for June of Mo cheese is 240 unfavorable.

Explanation of Solution

  $\begin{array}{l}Activity\mathrm{var}iance=(S\tan dardunits-Actualunits)\times S\tan dard\cos t\\ Activity\mathrm{var}iance=(1000-1100)\times \$2.4\\ Activity\mathrm{var}iance=240U\end{array}$

To determine

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

The spending variance for June of Mo cheese.

Answer to Problem 1E

The spending variance for June of Mo cheese is $8 favorable

Explanation of Solution

  $\begin{array}{l}Spending\mathrm{var}iance=(Actualunitsold\times S\tan dard\cos tperunit)-Actual\cos t\\ Spending\mathrm{var}iance=(1100\times \$2.40)-2632\\ Spending\mathrm{var}iance=\$8F\end{array}$

To determine

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties.

The material price variance, quantity variance, and spending variance for June of Mo cheese.

Answer to Problem 1E

The material price variance is $188 Favorable, quantity variance is $180 Unfavorable, and spending variance is $8 Favorable for June of Mo cheese.

Explanation of Solution

1. Material price variance

  $\begin{array}{l}Material\mathrm{Pr}iceVariance=ActualQuantity(Actual\mathrm{Pr}ice-S\tan dard\mathrm{Pr}ice)\\ Material\mathrm{Pr}iceVariance=\$2,632(9,400\times \$0.30)\\ Material\mathrm{Pr}iceVariance=\$188F\end{array}$

2. Material quantity variance

  $\begin{array}{l}MaterialQuantityVariance=S\tan dard\mathrm{Pr}ice\times \left(\begin{array}{l}ActualQuantityUsed-\\ S\tan dardQuantityforactualproduction\end{array}\right)\\ MaterialQuantityVariance=\$0.30\times (9,400-(1100pizza\times 8ounceperpizza))\\ MaterialQuantityVariance=\$180U\end{array}$

3. Material spending variance

  $\begin{array}{l}MaterialSpendingVariance=Material\mathrm{Pr}iceVariance+MaterialQuantityVariance\\ MaterialSpendingVariance=\$188F+\$180U\\ MaterialSpendingVariance=\$8F\end{array}$