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13 January, 07:27

Direct Materials Variances Bellingham Company produces a product that requires 2.5 standard pounds per unit. The standard price is $3.75 per pound. If 15,000 units used 36,000 pounds, which were purchased at $4.00 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance

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  1. 13 January, 07:53
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    (a) $9,000 U

    (b) $5,625 F

    (c) $3,375 U

    Explanation:

    Given that,

    Production of a Product requires = 2.5 standard pounds per unit

    Standard price = $3.75 per pound

    Number of units = 15,000

    Pounds of material purchased = 36,000

    Purchasing price = $4.00 per pound

    (a) Direct material price variance:

    = [ (Actual cost - Standard cost) * Actual quantity purchased]

    = [ ($4 - $3.75) * 36,000]

    = $9,000 unfavorable variance

    (b) Quantity variance:

    = [ (Actual quantity used - Standard quantity used) * Standard cost per unit]

    = [ (36,000 - 37,500) * 3.75]

    = 5,625 favorable variance

    Workings:

    Standard quantity used:

    = No. of units * Standard price

    = 15,000 * 2.5 standard pounds per unit

    = 37,500

    (c) Cost variance:

    = Direct material quantity variance + Direct material price variance

    = 5,625 favorable variance + ( - $9,000 unfavorable variance)

    = $3,375 unfavorable variance
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