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Price and efficiency variances

Peterson Foods manufactures pumpkin scones. For January 2007, it budgeted to purchase and use 15,000 pounds of pumpkin at $0.89 a pound. It budgets for 60,000 pumpkin scones.

Actual purchases and usage for January 2007 were 16,000 pounds at $0.82 a pound. Actual output was 60,800 pumpkin scones.

1. Compute the flexible-budget variance.
2. Compute the price and efficiency variances.
3. Comment on the results in requirements 1 and 2.

Solution Preview

Peterson Foods manufactures pumpkin scones. For January 2007, it budgeted to purchase and use 15,000 pounds of pumpkin at $0.89 a pound. It budgets for 60,000 pumpkin scones.

Actual purchases and usage for January 2007 were 16,000 pounds at $0.82 a pound. Actual output was 60,800 pumpkin scones.

1. Compute the flexible-budget variance.
Actual cost Budgeted Costs Total Difference
Direct Materials 13,120 13,350 230 F

2. ...

Solution Summary

This solution is comprised of a detailed explanation to compute the flexible-budget variance and the price and efficiency variances and comment on the results in requirements 1 and 2.

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