Question

Consider the following information for Dave Company for the month of May:
Direct materials (DM) purchased and used							72,000	gallons
Total quantity of DM budgeted to be used in May production							68,800	gallons
Actual cost of DM purchased and used in May							$152,800
Unfavorable DM quantity variance							$7,200
What is the DM price variance in May?

	A.	$2,000 Unfavorable
	B.	$2,000 Favorable
	C.	$9,200 Unfavorable
	D.	$9,200 Favorable
	E.	$7,200 Unfavorable

Answer 1

Direct material quantity variance = $7,200 Unfavorable

Actual quantity = 72,000 gallons

Standard quantity = 68,800 gallons

Actual cost of direct material = $152,800

Direct material price variance = ?

Actual price = Actual cost of direct material/Actual quantity

= 152,800/72,000

= $2.1222222222 per gallons

Direct material quantity variance = Standard price x (Standard quantity - Actual quantity)

-7,200 = Standard price x (68,800 - 72,000)

Standard price = $2.25 per gallon

Direct material price variance = Actual quantity x (Standard price - Actual price)

= 72,000 x (2.25 - 2.1222222222)

= 72,000 x 0.1277777778

= $9,200  Favorable

Correct option is (c)