Question

The following direct materials data pertain to the operations of Wright Co. for the month of December. Standard materials price $5.00 per pound Actual quantity of materials purchased and used 16,500 pounds The standard cost card shows that a finished product contains 4 pounds of materials. The 16,500 pounds were purchased in December at a discount of 4% from the standard price. In December, 4,000 units of finished product were manufactured. Calculate the materials variances. Identify whether the variance is favorable or unfavorable?

Answer 1

There are various material variances, but main are Material Price Variance and Direct Material Quantity Variance and with the combination of these 2 variances we have Material Usage Variance

Material Price Variance = (Standard Price - Actual Price) X Actual Quantity

Given standard Price = $5 per unit

Actual Price = $5 - 4% = $4.8

Material Price Variance = ($5 - $4.8) X 16,500 = $3,300 Favorable

Material Quantity Variance = (Standard Quantity - Actual Quantity) X Standard Price

Standard Quantity = 4,000 units X 4 pounds per unit = 16,000 pounds

Material Quantity Variance = (16,000 - 16,500) X $5 = - $2,500 Unfavorable

Material Usage Variance = Standard Price X Standard Quantity - Actual Price X Actual Quantity

= ($5 X 16,000) - ($4.8 X 16,500)

= $80,000 - $79,200 = $800 Favorable = Material Price Variance + Material Quantity Variance = $3,300 + (-$2,500) = $800 Favorable

Material Price Variance = $3,300 Favorable

Material Quantity Variance = - $2,500 Unfavorable

Material Usage Variance = $800 Favorable