Question

Gala Enterprises reports the following information regarding the production on one of its products for the month. $8 per finished unit 390,000 lbs. Direct materials standard (4 lbs. @ $2/lb.) Actual direct materials used Actual finished units produced Actual cost of direct materials used 90,000 units $770,000 Requirement 1: Compute the direct materials cost variance and identify as either F for favorable or U for unfavorable. Cost variance .F/U Requirement 2: Compute the direct materials price variance and identify as either F for favorable or U for unfavorable. Price variance - F/U Requirement 3: Compute the direct material quantity variance and identify as either Ffor favorable or Ufor unfavorable. Quantity variance - F/U

Answer 1

Answer

Standard quantity = 90,000 × 4 = 360,000 pounds

Standard price = $2

Actual quantity = 390,000 pounds

Actual rate = 770,000 / 390,000 = $1.973

1 Material cost variance = (standard quantity × standard price) - (actual quantity × actual price)

Material cost variance  

= (360,000 × 2) - (390,000 × 1.973) = $49,470 Unfavorable

2 Material price variance

= (standard price - actual price) × actual quantity

= (2 - 1.973) × 390,000 = $10,530 Favorable

3 Material quantity variance

= (standard quantity - actual quantity) × standard price

= (360,000 - 390,000) × 2 = $60,000 Unfavorable

Proof

Material cost variance = material price variance - material quantity variance

Material cost variance

= 10,530 - 60,000 = $49,470 Unfavorable

The above are the detailed calculations, equations and proof.

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