Question

2) Below is direct material information for Crate Inc., which produces 8,000 crates: Actual direct materials: 26,000 lbs. at $5.50/lb. Standard direct materials: 29,000 lbs. at $5.00/lb. Instructions: a) Calculate the direct materials price variance, direct materials quantity variance, and the total direct materials cost variance. For each one give the dollar variance and indicate if it is a favorable or unfavorable variance. b) Who should these variances be reported to?

Answer 1

[1] Direct Material price variance = $ 13000 Unfavourable

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                5.00	-	$                       5.50	)	x	26000
	-13000
	Variance		$            13,000.00			Unfavourable-U

[2] Direct material quantity variance = $ 15,000 Favourable

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	29000	-	26000	)	x	$                           5.00
	15000
	Variance		$            15,000.00			Favourable-F

[3] Total Material Cost variance = $ 2,000 Favourable

Total material cost Variance
(	Standard Cost = 29000 x 5	-	Actual Cost = 26000 x 5.5	)
(	$                   145,000.00	-	$          143,000.00	)
	2000
	Variance		$              2,000.00			Favourable-F

• [b]
  >Price Variance is to be reported to PURCHASE MANAGER
  >Quantity Variance is to be reported to PRODUCTION MANAGER.