Question

At the beginning of June, Faiz Mainan Sdn. Bhd. budgeted 5,000 toys action figures to be manufactured in June at standard direct materials and direct labor costs as follows:

Direct materials RM50,000

Direct labor RM36,000

Total RM86,000

The standard materials price is RM4.00 per pound. The standard direct labor rate is RM18.00 per hour. At the end of June, the actual direct materials and direct labor costs were as follows:
Actual direct materials RM49,600

Actual direct labor RM34,020

Total RM83,620

There were no direct materials price or direct labor rate variance for June. In addition, assume no charges in the direct materials inventory balances in June. Faiz Mainan Sdn. Bhd. actually produced 4,850 units of toys action figures during June.
REQUIRED:
Determine the direct materials price variance.

Answer 1

To determine the direct materials price variance, the standard cost for the actual production volume is compared to the actual cost. At the given standard rate of RM4.00 per pound, with no price variance, we conclude that the difference between the actual and standard cost represents the direct materials quantity variance.

Step-by-step explanation:

To determine the direct materials price variance, we need to compare the standard cost of the direct materials to the actual cost incurred. Since there is no price variance and given the standard materials price is RM4.00 per pound, we can find the standard quantity of materials that should have been used for the actual production level.

The total standard cost for 5,000 toys at a standard material cost of RM50,000 gives us a standard cost per toy of RM10 (RM50,000 / 5,000 toys). For the actual production of 4,850 toys, the standard cost would be 4,850 toys x RM10 per toy, which equals RM48,500.

The actual cost of materials was RM49,600, so under a scenario with no direct materials price variance, this would mean that the entire variance is a direct materials quantity variance. In this case, because the actual cost is higher than the standard cost, Faiz Mainan Sdn. Bhd. has a direct materials quantity variance of RM1,100 unfavorable (RM49,600 actual - RM48,500 standard).