Question

Efficient Corporation uses a standard cost system. The following information was provided for the period that...

Efficient Corporation uses a standard cost system. The following information was provided for the period that just ended:

Actual price per gallon $11.75
Actual gallons of material used 5,000
Actual hourly labor rate $17.00
Actual hours of production 24,300
Standard price per gallon $12.00
Standard gallons per completed unit 1/2
Standard hourly labor rate $12.00
Standard time per completed unit 3 hrs.
Units completed during the period 9,000

Refer to the information provided for Efficient Corporation. The direct materials cost variance is:

a.

$1,125 favorable.
b.

$4,750 unfavorable.
c.

$6,000 unfavorable.
d.

$7,125 unfavorable.
Business   Accounting   
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Answer #1

Material cost variance is the difference between the standard cost of materials and actual cost of materials. If the actual cost is more than the standard cost then the variance is unfavourable and if the actual cost is less than the standard cost then the variance is favourble.

Standard material for 9,000 units = 9,000*1/2 = 4,500 gallons

Standard material cost = 4,500*12 = $54,000

Actual material cost = 5,000*11.75 = $58,750

Material cost variance = 54,000-58,750 = $4,750 unfavourable

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