Question

Acoma, Inc., has determined a standard direct materials cost per unit of $8 (2 feet times $4 per foot). Last month, Acoma purchased and used 4, 200 feet of direct materials for which it paid $15, 750. The company produced and sold 2,000 units during the month. Calculate the direct materials price, quantity, and spending variances.

Answer 1

Answer:

Direct Material Price Variance = $1,050 Favorable

Direct Material quantity Variance = $800 Unfavorable

Direct Material Spending Variance = $250 Favorable

Explanation:

Provided information we have,

Standard quantity = 2 feet per unit

Standard price per feet = $4 per feet

Actual units produced = 2,000

Actual cost = $15,750

Actual raw material used = 4,200 feet

Cost per feet actual = $\frac{15,750}{4,200} = 3.75 per feet$

Standard quantity for actual output = 2,000 units $\times$ 2 feet

= 4,000 feet

Standard cost = 4,000 $\times$ $4 = $16,000

Direct Material Price Variance = (Standard Price - Actual Price) $\times$ Actual quantity

= ($4 - $3.75) $\times$ 4,200 = $1,050 Favorable

Since the value is positive as actual rate is less than standard rate, therefore, variance is favorable.

Direct Material Quantity Variance = (Standard Quantity - Actual Quantity) $\times$ Standard Price

= (4,000 - 4,200) $\times$ $4

= -$800 Unfavorable

As, the value is negative, since actual quantity used is higher than standard quantity, therefore, variance is unfavorable.

Direct Material Spending Variance = (Standard Cost - Actual Cost)

= $16,000 - $15,750

= $250 Favorable

As the value is positive because actual cost is less than standard cost the variance is favorable.