Question

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12/kilogram) = $60/unit; direct labor (3.5 hours/unit × $20/hour) = $70/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: In-process beginning inventory None In-process ending inventory—80% complete as to labor 1,030 units Units completed during the period 6,840 units Budgeted output 7,410 units Purchases of materials (in kilograms) 43,500 Total actual direct labor cost incurred $ 540,464 Direct labor hours worked (AQ) 27,200 hours Materials purchase-price variance $ 4,785 favorable Increase in materials inventory in December 3,300 kilograms The direct materials usage variance for December, to the nearest dollar, was:

Answer 1

(a)-Actual units of production-materials

= In-process ending inventory + Units completed during the period

= 1,030 Units + 6,840 Units

= 7,870 Units

(b)-Standard Kg of materials required for production

= 7,870 Units x 5 Kg

= 39,350 Kg

(c)-Actual materials used

= [43,500 Kg – 3,300 Kg] – 39,350 Kg

= 850 Kg

(b)- The direct materials usage variance

The direct materials usage variance = Actual materials used x Standard Rate per kg

= 850 Kg x $12/kilogram

= $10,200 U [Unfavourable]

“The direct materials usage variance for December, to the nearest dollar, was $10,200 U [Unfavourable]”