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A company’s master budget indicated that 50,000 units of finished goods should be produced using 25,000...

A company’s master budget indicated that 50,000 units of finished goods should be produced using 25,000 feet of materials at $4 per foot. The company actually produced 48,000 units of finished goods, purchased 27,000 feet of materials at $4.25 per foot, and used 25,000 feet of materials in production. The direct material efficiency variance is

  • A.$6,000 unfavorable.
  • B.$8,000 unfavorable.
  • C.$4,000 unfavorable.
  • D.$0.
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Answer #1

Answer is Option C) $4,000 Unfavorable

Direct Material Efficiency Variance = (Standard Quantity of Actual Output - Actual Quantity) * Standard Price

Standard Quantity of Actual Output =

(Standard Quantity of Materials / Standard Output) * Actual Output

= (25,000 / 50,000) * 48,000

= 0.5 * 48,000

= 24,000

Actual Quantity of Materials used = 25,000

Direct Material Efficiency Variance = (24,000 - 25,000) * $4

= -1,000 * $4

= -$4,000

= $4,000 Unfavorable

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