Question

A company bought 45,000 pounds of plastic pellets to make DVDs at a cost of $9,900. The standard cost per pound for the pellets is 20.5 cents. Some of these pellets were used in three jobs. The first job called for 7,500 pounds but used 7,250 pounds. The second job called for 8,800 pounds but used 9,000 pounds. The third job called for 2,300 pounds but used 2,250 pounds. Compute the direct materials price variance and the direct materials quantity variance for each job and in total. Why would you want to calculate the direct materials quantity variance for each job?

Answer 1

The direct materials price variance and quantity variance can be calculated for each job, providing insights into cost differences and material usage. Calculating the quantity variance helps evaluate the efficiency of material usage and identify potential cost savings or excess costs.

Step-by-step explanation:

The direct materials price variance is calculated by multiplying the difference between the actual price and the standard price by the actual quantity used. For each job, the direct materials price variance can be calculated as follows:

Job 1: ($9,900 - (7,250 * $0.205)) = $187.50 favorable variance

Job 2: ($9,900 - (9,000 * $0.205)) = $405 unfavorable variance

Job 3: ($9,900 - (2,250 * $0.205)) = $137.50 unfavorable variance

The direct materials quantity variance is calculated by multiplying the difference between the actual quantity used and the standard quantity by the standard price. It shows the impact of using more or less materials than expected. For each job, the direct materials quantity variance can be calculated as follows:

Job 1: (7,250 - 7,500) * $0.205 = $51.25 favorable variance

Job 2: (9,000 - 8,800) * $0.205 = $41 unfavorable variance

Job 3: (2,250 - 2,300) * $0.205 = $10.25 favorable variance

Calculating the direct materials quantity variance for each job allows managers to identify if the materials were used efficiently and whether any additional costs were incurred due to excess or shortage of materials. It helps in evaluating the performance of each job and making necessary adjustments for future projects.