BOC Corporation is analyzing the direct material variances for its most popular product. The direct material is increasingly hard to find and the standard price per ounce of material is $6.45. The company actually had to pay $7.25 per ounce due to the lack of available vendors selling the material. BOC Corporation usually expects to use 1.25 ounces of material per unit; however, they actually used 1.10 ounces per unit. Given this information, BOC Corporation would expect to calculate a (n) : A) favorable direct material price and quantity variances. B) unfavorable direct material price variance and a favorable quantity variance. C) favorable direct material price variance and an unfavorable quantity variance. D) unfavorable direct material price and quantity variances.

The correct answer is: B.

Explanation:

Giving the following information:

Standard price = $6.45 per ounce.

The company had to pay $7.25 per ounce.

Standard quantity = 1.25 ounces of material per unit

Actual quantity = 1.10 ounces per unit.

The formulas to calculate the direct material quantity and price variance is:

Direct material price variance = (standard price - actual price) * actual quantity

Direct material quantity variance = (standard quantity - actual quantity) * standard price

When a company determines the unfavorable or favorable components of price and quantity, it always compares it to the estimates values per unit.

When the direct material price per unit is higher than the standard, the direct material price variance is unfavorable.

When the actual quantity used per unit is lower than estimated, the direct material quantity variance is favorable.