Question

A manufactured product has the following information for June. Direct materials Direct labor Overhead Units manufactured Standard (6 lbs. @ $7 per lb.) (2 hrs. @ $16 per hr.) (2 hrs. @ $12 per hr.) Actual 47,200 lbs. @ $7.20 per lb. 15,300 hrs. $16.40 per hr. $ 193,600 7,800 Compute the direct materials price variance and the direct materials quantity variance. Indicate whether each variance is favorab unfavorable. AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price Actual Cost Standard Cost

Answer 1

Direct Materials Price Variance = Actual Quantity * (Standard Price - Actual Price) = 47,200lbs * ($7 - $7.2) = ($9,440)

This variance is unfavourable as higher purchase costs are incurred during the period as compared to standard price.

Standard Quantity = 6lbs * 7800 units = 46,800 lbs
Direct Materials Quantity Variance = Standard Price * (Standard Quantity - Actual Quantity) = $7 * (46,800 lbs - 47,200 lbs) = ($2,800)

This variance is unfavourable as 400lbs additional direct material increased additional costs by $2,800.