Question

Direct Materials Variances

Tip Top Corp. produces a product that requires 10 standard gallons per unit. The standard price is $4 per gallon. If 5,500 units required 57,200 gallons, which were purchased at $3.92 per gallon, 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	$
b. Direct materials quantity variance	$
c. Direct materials cost variance	$

Answer 1

	Cost Card
	Particulars	Standard cost for actual production	Actual cost
	Gallons	Rate($/gallon)	Amount	Gallons	Rate($/gallon)	Amount
	Direct Material	55000	4	$        220,000	57200	3.92	$                 224,224.00
		(5500 units * 10 gallon)
	Computation of variances
a	Material Price variance = (Standard rate - Actual rate) * Actual quantity
	Material Price variance = ( 4 -3.92 ) * 57200 = - 4576 (Favorable)
b	Material Quantity variance = (Standard Quantity - Actual Quantity used) * Standard rate
	Material Quantity variance = (55000-57200) * 4 = 8800( Unfavourable)
c	Material Cost variance = (Standard Cost for actual output - Actual cost)
	Material Cost variance = (220000 - 224224) = 4224 (Unfavourable)
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