Question

Tercer reports the following for one of its products, Direct materials standard (4lbs 92 per lb.) Actual direct materials used (AQ) Metual finished units produced hetual cost of direct materials used 8 per finished unit 300,000 lbs. 60,000 units $535,000 AQ = Actual Quantity SQ = Standard Quantity AP Actual Price SP - Standard Price Print Compute the direct materials price and quantity variances and classify each as favorable or unfavorable. Actual Cost Standard Cost

Answer 1

(a) Direct material price variance = (Standard price - Actual price) * Actual quantity

Standard price = $2 per lb

Actual quantity = 300000 lbs

Actual price = Actual cost of direct materials used / Actual quantity

Actual price = $535000 / 300000 = $1.783 per lb

Now, putting these values in the above formula, we get,

Direct material price variance = ($2 - $1.783) * 300000

Direct material price variance = $0.217 * 300000 = $65100

Since the variance is positive, so it is a favorable variance.

(b) Direct material quantity variance = (Standard quantity for actual units - Actual quantity) * Standard price

Standard price = $2 per lb

Actual units = 60000

Standard quantity = 4 lbs per unit

Standard quantity for actual units = 4 * 60000 = 240000 lbs

Actual quantity = 300000 lbs

Now, putting these values in the above formula, we get,

Direct material quantity variance = (240000 - 300000) * $2

Direct material quantity variance = - 60000 * $2 = - $120000

Since the variance is negative, so it is unfavorable variance.