In: Accounting
Direct Materials Variances
Silicone Engine Inc. produces wrist-worn tablet computers. The company uses Thin Film Crystal (TFC) LCD displays for its products. Each tablet uses one display. The company produced 450 tablets during December. However, due to LCD defects, the company actually used 500 LCD displays during December. Each display has a standard cost of $6.40. LCD displays were purchased for December production at a cost of $3,150.
Determine the price variance, quantity variance, and total direct materials cost variance for December. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. And, enter your final variance amounts to the nearest whole dollar.
Price variance | $ | |
Quantity variance | $ | |
Total direct materials cost variance | $ |
Answer:
Calculation of direct material variances:
Standard quantity used to produced 450 tablets = 450 x 1 LCD = 450 LCD
Actual quantity used to produced tablets = 500 LCD
Standard Price = $6.40 per LCD
Actual Price = $3,150 / 500 LCD = $6.30 per LCD.
Now,
Direct material price variance = (Standard Price - Actual Price) x Actual quantity
= ($6.40 - $6.30) x 500 LCD
= -$50
Direct material quantity variance = (Standard quantity - Actual quantity) x Standard Price
= (450 LCD - 500 LCD) x $6.40
= $320
Total direct material cost variance = (Standard quantity x Standard Price) - (Actual quantity x Actual Price)
= (450 LCD x $6.40) - (500 LCD x $6.30)
= $2,880 - $3,150
= $270
or,
Total direct material cost variance = (Direct material price variance + Direct materia; quantity variance)
= -$50 + $320
= $270
Direct Material Price Variance | -$50 |
Direct Material Quantity Variance | $320 |
Total direct materials cost variances | $270 |