Question

Use the following information for the Exercises below.

[The following information applies to the questions displayed below.]

A manufactured product has the following information for June.

	Standard	Actual
Direct materials	7 lbs. @ $7 per lb.		56,400	lbs. @ $7.10 per lb.
Direct labor	3 hrs. @ $16 per hr.		23,600	hrs. @ $16.50 per hr.
Overhead	3 hrs. @ $12 per hr.	$	293,100
Units manufactured			8,000

Exercise 08-9 Direct materials variances LO P3

Compute the direct materials price variance and the direct materials quantity variance. (Indicate the effect of each variance by selecting for favorable, unfavorable, and no variance. Round "Cost per unit" answers to 2 decimal places.)

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price

Answer 1

AQ = Actual Quantity = 56,400 lbs.

AP = Actual Price = $7.10 per lb.

SQ = Standard quantity for actual output = 7 lbs. * 8000 units = 56,000 lbs.

SP = Standard price = $7 per lb.

Direct Material Price variance = AQ * (SP - AP) = 56,400 * ($7 - $7.10)

Direct Material Price variance = - $5,640

Direct Materials quantity variance = SP * (SQ - AQ) = $7 * (56,000 - 56,400) = - $2,800

' - ' sign indicates Unfavorable variance

Answers.

Direct Material Price variance = $5,640 unfavorable

Direct Materials quantity variance = $2,800 unfavorable