Daniel Smith, production manager, has just received a report stating that the total materials variance (materials price variance plus materials quantity variance) for last month was $4,670 unfavorable. However, he is not certain whether the production supervisors are overdrawing from inventory or whether the purchasing department has been unable to acquire materials at reasonable prices. The information he needs is contained in the following report:

Budgeted production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 units

Actual production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 units

Standard materials per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.5 pound

Materials used in March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,000 pounds

Standard price for materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$1.25 per pound

Actual price for materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.19 per pound

1. Compute the materials price and quantity variances for the month. (Note: Mr. Smith’s company computes the materials price variance at the time that materials are issued to production.)

2. Interpretive Question: What was the cause of the unfavorable variance, and what recommendation would you make to Mr. Smith?