Question

Balt Company maintains a standard cost system; as such, all inventories, including materials, are carried on the books at standard cost. Last period, Balt used 6,000 pounds of Material H to produce 800 units of Product C8. The company has established a standard of 7 pounds of Material H per unit of C8, at a price of $7.50 per pound of material. During the period, Balt purchased 3,000 pounds of Material H. The company spent $20,000 during the period to purchase material H. Required: 1. Calculate the direct materials purchase-price variance for the period, rounded to the nearest dollar. 2. Calculate the direct materials usage variance for the period, rounded to the nearest whole dollar.

Answer 1

1. Purchase price variance = $2,490 Favorable

2. Direct Material Usage Variance = $3,000 Unfavorable

Step-by-step explanation:

Provided information, we have

Standard Material per unit = 7 pounds

Actual Units produced = 800 units

Standard units = 800
`*` 7 = 5,600 pounds

Actual units = 6,000 pounds

Standard Price per pound = $7.50

Actual price =
`(20,000)/(3,000) = $6.67`

1. Purchase price variance = (Standard Price - Actual Price)
`*` Actual Quantity Purchased

= ($7.50 - $6.67)
`*` 3,000 = $2,490 Favorable

As the price at which units are purchased is less than standard, the variance is favorable.

2. Direct Material Usage Variance = ( Standard Quantity - Actual Quantity)
`*` Standard Rate

= (5,600 - 6,000)
`*` $7.50

= - $3,000 Unfavorable

As we can see, the actual quantity used is higher than the standard quantity, therefore the variance is unfavorable.