Question

The following standards have been established for a raw material used to make product N04: Standard quantity of the material per unit of output 2.7 pounds Standard price of the material ........ $15.50 per pound The following data pertain to a recent month's operations: Actual material purchased.... 5,200 pounds Actual cost of material purchased......... $82,680 Actual material used in production....... 4,600 pounds Actual output.... 1,760 units of product N04 a. What is the materials price variance for the month? b. What is the materials quantity variance for the month?

Answer 1

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

Standard price = $15.50 per pound

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

Actual price = $82680 / $5200 = $15.9 per pound

Actual quantity = 4600 pounds

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

Direct material price variance = ($15.50 - $15.9) * 4600

Direct material price variance = - $0.4 * 4600 = - $1840

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

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

Standard price = $15.50 per pound

Actual output = 1760 units

Standard quantity per unit of output = 2.7 pounds

Standard quantity for actual units = 2.7 * 1760 = 4752 pounds

Actual quantity = 4600 pounds

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

Direct material quantity variance = (4752 - 4600) * $15.50

Direct material quantity variance = 152 * $15.50 = $2356

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