qs 21-8 (algo) direct materials price and quantity variances lo p3

a company reports the following for one of its products.

direct materials standard (4 pounds @ $3 per pound): $ 12 per unit
actual direct materials used (aq): 330,000 pounds
actual units produced: 64,000 units
actual cost of direct materials used: $ 924,000

aq = actual quantity
sq = standard quantity
ap = actual price
sp = standard price

compute the direct materials price and quantity variances and identify each as favorable or unfavorable.

Question

qs 21-8 (algo) direct materials price and quantity variances lo p3

a company reports the following for one of its products.

direct materials standard (4 pounds @ $3 per pound): $ 12 per unit
actual direct materials used (aq): 330,000 pounds
actual units produced: 64,000 units
actual cost of direct materials used: $ 924,000

aq = actual quantity
sq = standard quantity
ap = actual price
sp = standard price

compute the direct materials price and quantity variances and identify each as favorable or unfavorable.

Accepted Answer

{ "quality": "clear", "question_count": 1, "skills_matched": [ "step_cot", "explain_then_answer", "quick" ], "needs_drawing": false, "concepts_used": [ "Direct Materials Variance" ], "new_concepts": [], "current_concepts": [ "Direct Materials Variance", "Direct Materials Price Variance", "Direct Materials Quantity Variance" ] } ## Calculate actual price and standard quantity $$ \begin{aligned} &\text{AQ} = 330,000\text{ pounds} \ &\text{AP} = \frac{\$924,000}{330,000\text{ pounds}} = \$2.80\text{ per pound} \ &\text{SP} = \$3.00\text{ per pound} \ &\text{SQ} = 64,000\text{ units} \times 4\text{ pounds/unit} = 256,000\text{ pounds} \end{aligned} $$ ## Compute intermediate cost values $$ \begin{aligned} &\text{Actual Cost (AQ } \times \text{ AP)} = 330,000 \times \$2.80 = \$924,000 \ &\text{AQ } \times \text{ SP} = 330,000 \times \$3.00 = \$990,000 \ &\text{Standard Cost (SQ } \times \text{ SP)} = 256,000 \times \$3.00 = \$768,000 \end{aligned} $$ ## Calculate price and quantity variances $$ \begin{aligned} &\text{Direct Materials Price Variance} = \text{AQ} \times (\text{AP} - \text{SP}) = \$924,000 - \$990,000 = -\$66,000 \quad (\text{Favorable}) \ &\text{Direct Materials Quantity Variance} = (\text{AQ} - \text{SQ}) \times \text{SP} = \$990,000 - \$768,000 = \$222,000 \quad (\text{Unfavorable}) \ &\text{Total Direct Materials Variance} = -\$66,000 + \$222,000 = \$156,000 \quad (\text{Unfavorable}) \end{aligned} $$ ### Variance Analysis Table | Actual Cost | | AQ $\times$ SP | | Standard Cost | | :--- | :---: | :--- | :---: | :--- | | $330,000\text{ lbs.} \times \$2.80$ | | $330,000\text{ lbs.} \times \$3.00$ | | $256,000\text{ lbs.} \times \$3.00$ | | $\$924,000$ | | $\$990,000$ | | $\$768,000$ | ### Variances | Variance | Amount | Type | | :--- | :--- | :--- | | Direct materials price variance | $\$66,000$ | Favorable | | Direct materials quantity variance | $\$222,000$ | Unfavorable | | Total direct materials variance | $\$156,000$ | Unfavorable | { "subject": "Business", "question_type": "Free Response", "knowledge_point": [ "Business", "Accounting", "Direct Materials Variance" ] }

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QUESTION IMAGE

Question

Explanation:

Calculate actual price and standard quantity

Compute intermediate cost values

Calculate price and quantity variances

Answer:

Variance Analysis Table

Variances

Variance	Amount	Type
Direct materials quantity variance	\(\$222,000\)	Unfavorable
Total direct materials variance	\(\$156,000\)	Unfavorable