Question

Gifford Corp. budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units. Find the amounts for the direct materials variance, direct marerials quantity variance, and the total direct materials variance along with whether or not they're favorable or unfavorable. Show all your work. If possible, give reasons as to why the variances came out the way they did.

Answer 1

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

Standard price = $5 per pound

Actual price = $5.10 per pound

Actual quantity = 4500 pounds

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

Direct material price variance = ($5 - $5.10) * 4500

Direct material price variance = -$0.1 * 4500 = -$450

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

Materials were purchased at higher price than the price budgeted for them, mauy be due to price increase, which resulted in unfavorable variance.

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

Standard price = $5 per pound

Standard quantity for actual units = 4000 pounds

Actual quantity = 4500 pounds

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

Direct material quantity variance = (4000 - 4500) * $5

Direct material quantity variance = - 500 * $5 = - $2500

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

Materials used were more than the budgeted quantity, may be due to inefficient handling of materials, which resulted in unfavorable variance.

Total Direct material variance = Direct material price variance + Direct material quantity variance

Total Direct material variance = - $450 + (-$2500) = - $2950

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