Question

Part of your company's accounting database was destroyed when Godzilla attacked the city. Through careful recreation of data, you have been able to determine that during the previous period, 20,000 units of product were produced. Raw Materials Inventory increased by 2,000 ounces during the period. Reports show that the direct material price variance was a favorable $120,000 for the period and the total direct material variances was a favorable $40,000. The actual price paid for direct material during the period was $14 per ounce, which was $3 less per ounce than expected. The quantity allowed per unit of output was ounces. (round to the nearest hundreth)

Answer 1

Direct material price variance = $120,000 favorable

Total direct material variance = $40,000 favorable

Direct material quantity variance = Total direct material variance - Direct material price variance

= 40,000 - 120,000

= $80,000 unfavorable

Actual price = $14 per ounce

Standard price = $17 per ounce

Direct material price variance = Actual quantity x (Standard price - Actual price )

120,000 = Actual quantity x (17 - 14)

Actual quantity = 40,000 ounce

Direct material quantity variance = Standard price x (Standard quantity - Actual quantity)

-80,000 = 17 x (Standard quantity - 40,000)

-4,705.88 = Standard quantity - 40,000

Standard quantity = 35,294.12 ounces

Standard quantity allowed per unit of output = Standard quantity/Actual output

= 35,294.12/20,000

= 1.76 ounce

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