Question

Gates Corporation reported the following information concerning its direct materials.

Direct materials purchased (actual)	$	683,000
Standard cost of materials purchased	$	708,000
Standard price times actual amount of materials used	$	454,000
Actual production		24,000	units
Standard direct materials costs per unit produced	$	18

Required:

Compute the direct materials cost variances. (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Direct material cost variance is difference between actual material cost and standard material cost budgeted.

direct material cost variance = direct material price variance+direct material efficiency variance

we will first find material price variance

direct material price variance = actual cost of material purchased - standard cost of material purchased

=$683,000-$708,000

=$25,000 favorable[ as the standard cost is more than the actual cost the variance is favorable]

direct material efficiency variance= [Actual quantity-standard quantity used for actual production]*standard price

=standard price time actual material used -standard price of material used per unit*actual production

=$454,000-(24000*18)

=$454,000-$432,000

=$22,000 unfavorable[as the actual material used is more than standard allowed for actual output the variance is unfavorable]

direct material cost variance = $25,000 favorable+$22,000unfavorable

=$3000 favorable.