Question

BE 23-1

BE 23-1 Direct materials variances Obj. 3 Bellingham Company produces a product that requires 2.5 standard pounds per unit. The standard price is $3.75 per pound. If 15,000 units used 36,000 pounds, which were purchased at $4.00 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) Cost variancer

Answer 1

1) Direct material price variance: [(Actual cost - Standard cost) * Actual quantity purchased]

= [(4 - 3.75) * 36,000]

= $9,000 unfavorable variance

2) Standard quantity: [Standard pound per unit * Total pounds used] = 2.5 * 15,000 = 37,500

Direct material quantity variance: [(Actual quantity used - Standard quantity used) * Standard cost per unit]

= [(36,000 - 37,500) * 3.75]

= 5,625 favorable variance

3) Cost variance: Direct material quantity variance - Direct material price variance

= $9,000 + (-$5,625)

= $3,375 unfavorable variance