Question

Tercer reports the following for one of its products. Direct materials standard (3 lbs. @ $3 per lb.) Actual direct materials used (AQ) Actual finished units produced Actual cost of direct materials used $ 9 per finished unit 270,000 lbs. 71,000 units $742,500 AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price Compute the direct materials price and quantity variances and classify each as favorable, unfavorable or no variance. Actual Cost Standard Cost

Answer 1

Ans:

Actual Price= 742,500/270,000

= $ 2.75

Standard quantity= 3*71,000

= 213,000 lbs

Actual Cost= Actual price* Actual Quantity

=2.75* 270,000

= 742,500

Actual quantity* standard price= 3*270,000

= 810,000

Standard cost= Standard quantity* standard price

= 213,000* 3

= 639,000

Direct Materials price variance= 810,000-742,500 = 67,500 {favorable}

Direct materials quantity Variance= 810,000-639,000= 171,000 (unfavorable)

Total direct materials variance= 103,500 { unfavorable}