Question

Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows:

Budgeted units of Flex 10 for June		5,100
Budgeted usage of PPS		45,900	pounds
Actual number of units of Flex 10 manufactured		4,100
PPS purchased		44,020	pounds
PPS used		40,000	pounds
Total actual cost of PPS used	$	190,400
Direct materials usage variance	$	22,010	unfavorable

Assume that Norio does not maintain an inventory of materials, so that the amount of materials used is equal to the amount of materials purchased.

QUESTION:

The direct materials purchase-price variance (rounded to the nearest dollar) is:

Answer 1

Answer : $103,006.80 favorable

Explanation:

Direct materials usage variance = $22,010 unfavorable

or , (Actual usage of materials - Standard usage of materials) * Standard per unit of material =  22,010

[40,000 pounds - {4,100 units * (45,900 pounds / 5,100 units)} * Standard per unit of material = 22,010

(40,000 - 36,900) * Standard per unit of material = 22,010

Standard per unit of material = 22,010 / 3,100 = $7.10

Actual per unit of material = Total actual cost of PPS used / PPS used

= $190,400 / 40,000 = $4.76

Direct materials purchase-price variance

= (Actual per unit of material - Standard per unit of material) * Actual quantity of materials purchased  

= ($4.76 - $7.10) * 44,020 pounds

= $103,006.80 favorable.

Since, actual per unit of material < standard per unit of material, the resultant direct materials purchase-price variance is favorable.