Question

The following information is available for DEF Company pertaining to its budgeted and actual activities for the period.

Item	Budgeted Activity (10,000 units)	Actual Activity (12,000 units)
Sale Price	$10.00 per unit	$9.75 per unit
Variable Costs (per unit)
Direct Materials	$2.00 per unit	$1.89 per unit
Direct Labor	$3.00 per unit	$3.05 per unit
Factory Supplies	$0.25 per unit	$0.25 per unit
Utilities	$0.35 per unit	$0.33 per unit
Selling Costs	$0.50 per unit	$0.45 per unit
Fixed Costs (for the period)
Depreciation	$2,500	$3,000
Administrative Expenses	$15,000	$13,000
Property Taxes	$1,000	$1,000

Factory Supplies, Utilities, and Depreciation are considered to be overhead items.

The standard for each unit for direct materials is to use 10 ounces at a cost of $0.20 per ounce. The actual production used 9 ounces at a cost of $0.21 per ounce.

The standard for each unit for direct labor is to use 0.20 hours at $15.00 per hour. The actual production used 0.20 hours at $15.25 per hour.

Apply variance analysis for direct materials. Calculate a price variance, quantity variance, and total direct materials variance.

Answer 1

Material price variance = (Actual price - standard price) * actual quantity used

= (0.21-0.20)x (9*12000)

= 0.01*108000 = $1080 Unfavourable

Material quantity variance = (Actual usage in Units - standard usage in Units) * standard cost per unit

= ((9*12000)-(10*12000))*0.20

= (108000-120000)*0.20

=2400 Favourable

Total direct materials variance = Direct materials price variance + direct materials quantity variance

= 1080 Unfavourable + 2400 Favourable

=$ 1,320 Favourable