Question

Direct Materials Variances Bellingham Company produces a product that requires 10 standard pounds per unit. The standard price is $6 per pound. If 3,300 units used 32,000 pounds, which were purchased at $6.18 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

a. Direct materials price variance $ Favorable or unfavorable

b. Direct materials quantity variance . $ Favorable or unfavorable

c. Direct materials cost variance $ Favorable or unfavorable

Answer 1

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

Standard price = $6 per pound

Actual price = $6.18 per pound

Actual quantity = 32000 pounds

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

Direct material price variance = ($6 - $6.18) * 32000

Direct material price variance = -$0.18 * 32000 = -$5760

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 = $6 per pound

Standard quantity for actual units = 3300 * 10 = 33000 pounds

Actual quantity = 32000 pounds

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

Direct material quantity variance = (33000 - 32000) * $6

Direct material quantity variance = 1000 * $6 = $6000

Since the variance is positive, so it is a favorable variance.

Materials used were less than the budgeted quantity, may be due to efficient handling of materials, which resulted in a favorable variance.

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

Total Direct material cost variance = - $5760 + $6000 = $240

Since the variance is positive, so it is a favorable variance.