Question

xyz company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. xyz uses standard costs to prepare its flexible budget. for the first quarter of the year, directs materials and direct labor standards for one of their popular were as follow: direct material 2 pound per unit: 12 per pound . direct labor 4 hours per unit 18 per pound . xyz produced 300 units during the quarter. At the end of the quarter an examination of the direct material repcred showed that the company used 7500 pounds of direct materials and actual total materials costs were 98,400. what is the direct cost variance? and favorable or unfavorable

Answer 1

Relevant information from data provided in question are....

Standards :

Material required per unit : 2 pound

MAterial cost per pound : 12

Hence Material cost per unit = 2 x 12 =$ 240

Actual :

Actual unit produced : 300

Actual material used : 7500 pound

Actual material cost : $98,400

Hence,....

Standard material for actual unit production is = 300 units x 2 pounds per unit = 600 pounds

Standard material cost = 600 pound x 12 per pound = $ 7200

Direct material cost variance = Actual material cost - standard material cost

Direct material cost variance = $ 98400 - $7200 = $ 91200 Unfavorable

Alternatively it can be also calculated as...

Direct material cost variance = Direct material unit Variance + Direct material price variance

Direct material cost variance = 82800 unfavorable + 8400 unfavorable =$ 91200 Unfavorable

Where,....

Direct material unit Variance = standard price per pound ( actual pound used - standard pound)

Direct material unit Variance = 12 (7500-600) = 12 x 6900 = 82800 unfavorable

Direct material price variance = actual pound used (standard price per pound - actual price per pound)

Direct material price variance = 7500 (12- (98400/ 7500)

Direct material price variabne = 7500 (12- 13.12) = 7500 x 1.12 = 8400 unfavorable