EXERCISE 10-15 (CONTINUED) ALTERNATIVE SOLUTION

2. a. Standard cost of last week’s purchases (1,000 gallons × $8.00 per gallon)... $8,000Deduct favorable price variance ... 300Actual cost of last week’s purchases ... $7,700 Alternative Solution: Materials price variance = (AQ × AP) – (AQ × SP) (1,000 gallons × AP) – (1,000 gallons × $8.00 per gallon) = $300 F (1,000 gallons × AP) – $8,000 = –$300* (1,000 gallons × AP) = $7,700 *When used in the formula, a favorable variance is negative. b. The number of gallons of Material A used in production can be com-puted through analysis of the raw materials inventory account: Balance, Material A, 3/1 ... $ 0Add purchases (1,000 gallons × $8.00 per gallon) ... 8,000Total Material A available ... 8,000Less balance, Material A, 3/7 ... 2,000Total Material A used (at standard cost)... $6,000Total cost of material A used= $6,000 = 750 gallons usedStandard cost per gallon $8.00 per gallonCase 10-35 (continued) c. Materials quantity variance = SP (AQ – SQ) $8.00 per gallon (750 gallons – 720 gallons*) = $240 U *120 batches × 6 gallons per batch = 720 gallons d. Raw materials (1,000 gallons × $8.00 per gallon) ... 8,000 Materials price variance (1,000 gallons × $0.30 per gallon F) ... 300Accounts payable (1,000 gallons × $7.70 per gallon*) ... 7,700 *$7,700 ÷ 1,000 gallons = $7.70 per gallon Work in process (720 gallons × $8.00 per gallon) ... 5,760 Materials quantity variance (30 gallons U × $8.00 per gallon) ... 240 Raw materials (750 gallons × $8.00 per gallon)... 6,000