Question

A company developed the following per unit materials standards for its product: 3 gallons of direct materials at $4 per gallon. If 4,000 units of product were produced last month and 12,500 gallons of direct materials were purchased for $51,250 and all used, the direct materials quantity variance was

a.$1,250 favorable.
b.$1,250 unfavorable.
c.$2,000 favorable.
d.$2,000 unfavorable.

Answer 1

The direct materials quantity variance was calculated as unfavourable because more materials were used than the standard allowed, resulting in a c) $2,000 unfavourable variance.

Step-by-step explanation:

The direct materials quantity variance can be calculated by taking the difference between the standard quantity allowed for actual production and the actual quantity used, and then multiplying by the standard cost per unit of direct materials. Here, the standard quantity for 4,000 units would be 3 gallons per unit, amounting to 12,000 gallons (4,000 units × 3 gallons/unit). The actual quantity used was 12,500 gallons. The variance is therefore (12,000 gallons - 12,500 gallons) × $4 per gallon, resulting in a 500-gallon difference at $4 per gallon, which equals a $2,000 unfavourable variance since more materials were used than standard.