Question

1) Direct Materials Variances Steve’s Sausages begins business in March. In planning his business, Steve sets the following materials standard: Each sausage should take 250 grams of pork, and pork should cost $10 per kilogram, therefore each sausage should contain $2.50 of direct material. In March, Steve purchases 80 kilograms of pork for $750. Steve makes and sells 300 sausages and has 2 kilograms of pork remaining on hand at the end of the month.
- Required: Compute the company’s direct materials price and quantity variances.

2) Direct Materials Variances Relief Inc. manufactures portable toilets for use on construction sites. Each toilet requires 40 kilograms of plastic and plastic is estimated to cost $5 per kilogram. At the beginning of June, the company had no plastic inventory on hand. During the month, the company purchased 4,500 kilograms of plastic for $24,000. The company produced 100 toilets during the month and had 300 kilograms of plastic on hand at the end of the month.
- Required: Compute the company’s direct materials price and quantity variances.

Answer 1

1. Direct materials price variance = (Standard price - actual price)*Actual quantity purchased

= ($10 - 750/80)*80

= $50 Favorable

Direct materials quantity variances = (Standard quantity - actual quantity)*standard rate

= (300*0.25 - 78)*10

= $30 Unfavorable

2. Direct materials price variance = (Standard price - actual price)*Actual quantity purchased

= ($5 - 24000/4500)*4500

= $1500 Unfavorable

Direct materials quantity variances = (Standard quantity - actual quantity)*standard rate

= (100*40 - 4200)*5

= $1000 Unfavorable