Question

A manufactured product has the following information for June. Standard Actual Direct materials (5 lbs. @ $7 per lb.) 39,400 lbs. @ $7.10 per lb. Direct labor (3 hrs. @ $16 per hr.) 23,100 hrs. @ $16.40 per hr. Overhead (3 hrs. @ $12 per hr.) $ 286,500 Units manufactured 7,800 Compute the direct materials price variance and the direct materials quantity variance. Indicate whether each variance is favorable or unfavorable.

Answer 1

Answer:

price variance      3,940 U

quantity variance 2,800 F

Explanation:

DIRECT MATERIALS VARIANCES

$(standard\:cost-actual\:cost) \times actual \: quantity= DM \: price \: variance$

std cost          $7.00

actual cost  $7.10

quantity      39,400

$(7 - 7.10) \times 39,400 = DM \: price \: variance$

difference                  $(0.10)

price variance  $(3,940.00)

The difference between std cost and actual cost is negative, we purchased at a higher cost. the variance is unfavorable.

$(standard\:quantity-actual\:quantity) \times standard \: cost = DM \: quantity \: variance$

std quantity         39,000.00 (7,800 manufactured units x 5 lbs per unit)

actual quantity 39,400.00

std cost                       $ 7.00

$(39,000 - 39,400) \times 7 = DM \: quantity \: variance$

difference             -400.00

quantity variance $ (2,800.00)

We used more lbs than our standard for the output. This means we are not efficient in the use of materials. this variance is unfavorable as well