Question

Sitka Industries uses a cost system that carries direct materials inventory at a standard cost. The controller has established these standards for one ladder (unit):

Standard Quantity x Standard Price = Standard Cost Direct materials 3 pounds $4.50 per pound $13.50 Direct labor 2.00 hours $12.00 per hour    $24.00 Total cost $37.50 Sitka Industries made 3,000 ladders in July and used 8,800 pounds of material to make these units. Smith Industries bought 15,500 pounds of material in the current period. There was a $250 unfavorable direct materials price variance. A. How much in total did Sitka pay for the 15,500 pounds? B. What is the direct materials quantity variance? C. What is the total direct material cost variance? D. What if 9,500 pounds were used to make these ladders, what would be the direct materials quantity variance? E. If there was a $340 favorable direct materials price variance, how much did Sitka pay for the 15,500 pounds of material?

Answer 1

Direct material price variance = Actual quantity * (Standard price - Actual price)

Direct material price variance = 15,500 * ($4.50 - Actual price)

-$250 = $69,750 - 15,500*Actual price

Actual price = $70,000 / 15,500 = $4.52

A. Total actual price paid for 15500 pounds = $70,000

B. Direct material quantity variance = Standard quantity*Standard price - Actual quantity*Standard price

Direct material quantity variance = (3,000*3*$4.50) - 8,800*$4.50

Direct material quantity variance = $40,500 - 39,600 = $900 Favorable

C. Total direct material cost variance = $900 F + ($250) U

Total direct material cost variance = $650 F

D. Direct material quantity variance = (3,000*3*$4.50) - 9,500*$4.50

Direct material quantity variance = $40,500 - 42,750 = $2,250 Unfavorable

E. Direct material price variance = 15,500 * ($4.50 - Actual price)

$340 = $69,750 - 15,500*Actual price

Actual price = $69,750 - 340 / 15,500

Actual price = 69,410 / 15,500 = $4.48

Total actual price paid fo 15,500 pounds = $69,410