Question

A manufactured product has the following information for June. Standard Actual Direct materials (5 lbs. @ $9 per lb.) 40,000 lbs. @ $9.20 per lb. Direct labor (3 hrs. @ $16 per hr.) 23,400 hrs. @ $16.60 per hr. Overhead (3 hrs. @ $13 per hr.) $ 315,100 Units manufactured 7,900 Compute the direct materials price variance and the direct materials quantity variance. Indicate whether each variance is favorable or unfavorable.

Answer 1

Material variances:

Price = (Standard price – Actual price) × Actual quantity

         = ($9 - $9.20) × 40,000

         = $0.20 × 40,000

         = $8,000 Unfavorable

Note: Since actual price is higher than standard price, there is unfavorable variance.

Standard quantity = Units manufactured × Materials per unit

                              = 7,900 × 5

                              = 39,500

Quantity variance = (Standard quantity – Actual quantity) × Standard price

                              = (39,500 – 40,000) × $9

                              = 500 × $9

                              = $4,500 Unfavorable

Note: Since actual quantity is higher than standard quantity, there is unfavorable variance.