Question

The following data relate to the direct materials cost for the production of 2,500 automobile tires:

Actual:	51,000 lbs. at $1.9 per lb.
Standard:	52,500 lbs. at $1.95 per lb.

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct Materials Price Variance	$	favorable or unfavorable
Direct Materials Quantity Variance	$	favorable or unfavorable
Total Direct Materials Cost Variance	$	favorable or unfavorable

b. The direct materials price variance should normally be reported to the plant manager or purchasing deparment . When lower amounts of direct materials are used because of production efficiencies, the variance would be reported to the purchasing deparment or purchasing supervisor . When the favorable use of raw materials is caused by the purchase of higher-quality raw materials, the variance should be reported to the purchsing deparment or purchasing supervisor .

Answer 1

Direct Materials Price Variance                                                                            = ( Standard price (-) Actual price ) x Actual Quantity                                                                             =    ( $ 1.95 (-) $ 1.90 ) x 51,000 Direct Materials Price Variance             =      ( $ 2,550 )   Favourable

Direct Materials Quantity Variance                                                                           = ( Standard Quantity (-) Actual Quantity) x Standard Price                                                                           =    ( 52,500 (-) 51,000 ) x $ 1.95 Direct Materials Quantity Variance    =   ($ 2,925 ) Favourable

Total Direct Materials Cost Variance                  = (Standard Quantity x Standard Price ) (-) (Actual Quantity x Actual price )                  = ( 52,500 x $ 1.95 ) (-) ( 51,000 x $ 1.90 )                  = $ 102,375 (-) $ 96,900 Total Direct Materials Cost Variance   =   ($ 5,475 ) Favourable

(b)

The direct materials price variance should normally be reported to the Purchasing Department. When lower amounts of direct materials are used because of production efficiencies, the variance would be reported to the Purchasing supervisor. When the favorable use of raw materials is caused by the purchase of higher-quality raw materials,the variance should be reported to the Purchasing Department