Question

Quan Enterprises purchased and consumed 56,000 gallons of direct material that was used in the production of 15,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of four gallons. If a review of Quan's accounting records at the end of the period disclosed a material price variance of $5,600U and a material quantity variance of $2,800F, what is the actual price paid for a gallon of direct material

Answer 1

Total Direct Materials Cost Variance = Direct Material Price Variance + Direct Material Quantity Variance

Total Direct Materials Cost Variance = $5,600U + (-$2,800F)

Total Direct Materials cost Variance = $2,800 Unfavorable

Direct Material cost Variance = (Actual rate * Actual quantity) - (Standard Rate * Standard Quantity)

$2,800 U = (AR*56000) - (SR * (15,000*5)

$2,800 U = (AR*56000) - (SR * 75000)

We need Standard Price per Gallon to calculate the actual price paid for a gallon of direct material. But, we have no information about it.