Question

Balt Company maintains a standard cost system; as such, all inventories, including materials, are carried on the books at standard cost. Last period, Balt used 6,000 pounds of Material H to produce 850 units of Product C8. The company has established a standard of 7 pounds of Material H per unit of C8, at a price of $7.25 per pound of material. During the period, Balt purchased 4,000 pounds of Material H. The company spent $27,000 during the period to purchase material H.

Required:

1. Calculate the direct materials purchase-price variance for the period, rounded to the nearest dollar. (U or F)
2. Calculate the direct materials usage variance for the period, rounded to the nearest whole dollar. (U or F)

Answer 1

• [1]

Material Purchase Price Variance
(	Standard Rate	-	Actual Rate = $27000 / 4000 pounds	)	x	Actual Quantity purchased
(	$                               7.25	-	$                       6.75	)	x	4000
	2000
	Variance		$              2,000.00			Favourable-F

• [2]

Material Usage Variance
(	Standard Quantity = 850 units x 7 pounds	-	Actual Quantity used	)	x	Standard Rate
(	5950	-	6000	)	x	$                           7.25
	-362.5
	Variance		$                  362.50 or $ 363			Unfavourable-U