Question

A company provided the following direct materials cost information. Compute the total direct materials cost variance. Standard costs assigned: Direct materials standard cost (405,000 units $2.00/unit) 810,000 Actual costs: Direct Materials costs incurred (403,750 units $2.20/unit) $888,250 Multiple Choice
a. $2,500 Favorable.
b. $80,750 Unfavorable.
c. $78,250 Unfavorable.
d. $80,750 Favorable.
e. $78,250 Favorable

Answer 1

Answer:

C. $78,250 Unfavorable.

Explanation:

We know,

Material cost variance = (Standard quantity × Standard price) - (Actual Quantity × Actual price)

Given,

Standard quantity = 405,000 units

Standard price = $2.00 unit

Actual Quantity = 403,750 units

Actual price = $2.20 unit

Putting the values into the formula, we can get

Material cost variance = (Standard quantity × Standard price) - (Actual Quantity × Actual price)

Material cost variance = (405,000 × $2.00) - (403,750  × $2.20)

Material cost variance = $810,000 - $888,250

Material cost variance = -78,250

Material cost variance = 78,250 (Unfavorable)

Therefore, C is the answer.