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 (3 pounds @ $ 2 per pound)
actual direct materials used (aq)
actual units produced
actual cost of direct materials used
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.

Explanation:

Step1: Calculate the standard price (SP)

The standard price per pound is given as $2.

Step2: Calculate the actual price (AP)

The actual cost of direct materials used is $455,000 and the actual quantity (AQ) is 260,000 pounds. So, \(AP=\frac{455000}{260000} = 1.75\)

Step3: Calculate the direct materials price variance

The formula for direct materials price variance is \((AP - SP)\times AQ\). Substituting the values: \((1.75 - 2)\times260000=(- 0.25)\times260000=- 65000\) (favorable)

Step4: Calculate the standard quantity (SQ)

The standard quantity per unit is 3 pounds and the actual units produced is 70,000 units. So, \(SQ = 3\times70000=210000\) pounds

Step5: Calculate the direct materials quantity variance

The formula for direct materials quantity variance is \((AQ - SQ)\times SP\). Substituting the values: \((260000 - 210000)\times2=(50000)\times2 = 100000\) (unfavorable)

Answer:

Direct materials price variance: -$65,000 (favorable). Direct materials quantity variance: $100,000 (unfavorable)