Question

Direct Materials Variances

The following data relate to the direct materials cost for the production of 2,200 automobile tires:

Actual:	56,600 lbs. at $1.95 per lb.
Standard:	54,900 lbs. at $1.90 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	$
Direct Materials Quantity Variance	$
Total Direct Materials Cost Variance	$

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

Answer 1

a.

Total Direct Materials Cost Variance =( Standard Quantity x Standard Price) - (Actual Quantity x Actual Price)

= (54900x1.9) - (56600 x 1.95) = 104310 - 110370 = (6060)

Unfavourable

Direct Materials Price Variance = Actual Quantity (Standard Price - Actual Price)

= 56600 (1.9-1.95) = (2830) i.e Unfavourable

Direct Materials Quantity Variance = Standard Price (Standard Quantity - Actual Quantity)

1.9 (54900-56600) = (3230) i.e Unfavourable

b. The direct materials price variance should normally be reported to the purchase manager (as the price at wich raw materials are purchased is a matter of purchase department and if there was a general increase in the prices the variance would be negative however it comes under uncontrolable variance)

when lower amounts of direct materials are used because of production efficiencies, the variance would be reported to the "Production Supervisor" as its the effeciency indicated in the production by less wastage of resources.

When the favorable use of raw materials is caused by the purchase of higher-quality raw materials, the variance should be reported to the Purchase Department as the quality of raw material purchased is the reason for better results and optimum utilzation.