A company had a budgeted production of 12000 units and actual production of 13200 units. Two types of raw material, P and Q are used in the manufacturing of the products. The budgeted raw material requirement of the company was expected to be 3 lbs. of Material P at a price of $ 0.25 per lbs. and 2 lbs. of Material Q at a price of $ 0.35 per lbs. for every unit produced. The company actually ended up using 42000 lbs. of P at an actual cost of $0.19 per lbs. and 25000 lbs. of Q at an actual cost of $0.38 per lbs. Calculate Direct Material Price and Usage Variance for material P and Q.\

Direct Material Price Variance:

P = $2,520 F

Q = $750 U

Direct Material Usage Variance:

P = $1,500 U

Q = $350 U

Explanation:

a) Data and Calculations:

Budgeted production units = 12,000

Actual production units =       13,200

                                                                P           Q

Budgeted raw material per unit        3 lbs        2 lbs

Price per lbs                                       $0.25      $0.35

Budgeted raw materials              36,000 lbs  24,000 lbs

Actual lbs of raw materials          42,000 lbs  25,000 lbs

Actual price per lbs                          $0.19        $0.38

Direct Material Price Variance = (Standard Price - Actual Price) * Actual Qty

P = $0.25 - $0.19 * 42,000 = $2,520 F

Q = $0.35 - $0.38 * 25,000 = $750 U

Direct Material Usage Variance = (Standard Qty - Actual Qty) * Standard Price

P = 36,000 - 42,000 * $0.25 = $1,500 U

Q = 24,000 - 25,000 * $0.35 = $350 U

answer the law of increasing costs;