Question

Tidex Company is a manufacturer of cleaning detergent. Cleanx is manufactured on a weekly basis. The following standards have been established to produce 10,000 litres of Cleanx:

Standard direct materials used: 10,000 litres of detergent
Standard direct material price per litre $4
Actual direct materials used: 12,000 litres
Actual direct material price per litre: $4.35

Calculate the Total Direct Materials Budget Variance (TDMBV).
a) $4,000 favorable
b) $4,000 unfavorable
c) $5,000 favorable
d) $5,000 unfavorable

Answer 1

To compute the Total Direct Materials Budget Variance, subtract the actual cost from the standard cost. With 12,000 litres used at $4.35 per litre versus the standard 10,000 litres at $4 per litre, the resulting TDMBV is $12,200 unfavorable.

Step-by-step explanation:

The Total Direct Materials Budget Variance (TDMBV) is calculated by comparing the standard cost to produce the actual amount of product with the actual cost for the same. In this case, the standard for producing 10,000 litres of Cleanx is 10,000 litres at $4 per litre, amounting to $40,000.

The actual materials used were 12,000 litres at $4.35 per litre, totaling $52,200. Thus, the TDMBV is calculated as Standard Cost - Actual Cost, which is $40,000 - $52,200, giving us a variance of $12,200. Since the actual cost is higher than the standard cost, this results in an unfavorable variance. Therefore, the correct answer is:

d) $12,200 unfavorable