Question

3. DM variances (4pts): Pippin Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.

Inputs	Standard Quantity or Hours per Unit of Output			Standard Price or Rate
Direct materials		5.0	grams	$	7.00	per gram
Direct labor		0.30	hours	$	21.30	per hour
Variable manufacturing overhead		0.30	hours	$	9.60	per hour

The company planned to produce 8,300 units of output during June and has reported the following actual results for the product for June:

Actual output		8,500	units
Raw materials purchased		48,100	grams
Actual price of raw materials	$	7.70	per gram
Actual direct labor-hours		2,300	hours
Actual direct labor rate	$	21.70	per hour
Actual variable overhead rate	$	9.80	per hour

Assume all of the materials purchased was used during the month to produce the 8,500 units.

Calculate:

1. The DM activity variance

2. The DM spending variance

3. The DM price variance

4. The DM quantity variance

Answer 1

1) DM Activity variance = Static direct material-Flexible direct material = (8300*5*7)-(8500*5*7) = $7000 unfavorable

2) DM Spending variance = Flexible direct material -Actual direct material = (8500*5*7)-(48100*7.7) = $72870 Unfavorable

3) DM Price variance = (Standard price-actual price)actual quantity (7-7.70)*48100 = $33670 Unfavorable

4) DM quantity variance = (Standard quantity-actual quantity)Standard price = (8500*5-48100)*7 = 39200 Unfavorable