Direct material price is the cost of the raw materials and components used to create a product. The materials must be easily identifiable with the resulting product otherwise they are considered to be joint costs.
A Consider the data provided to compute the price and quantity variances for
direct materials in the following manner:
Standard price = $1.50 per micron
Standard quantity = 3,000 toys x 6 microns =18,000
Actual price = $1.48 per micron
Actual quantity = 25,000 microns
Actual quantity used = (25.000-5.000) microns = 20,000 microns
Direct materials price variance
Actual quantity « (Standard price — Actual price)
25,000 microns x($1.50-$1.48)
$500 (Favorable)
Direct materials quantity variance = Standard price » (Standard quantity — Actual quantity)
$1.50x(18,000-20,000 microns)
-$3,000( Unfavorable)
Therefore, the price and quantity variances for direct materials is 500(Favorable),
and $3,000(Unfavorable) respectively.
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