Question

The standard materials cost to produce one unit of Product M is 6 pounds of material at a standard price of $50 per pound. In manufacturing 8,000 units, 47,000 pounds of material were used at a cost of $51 per pound. What is the total direct material cost variance?

A. $48,000 unfavorable.
B. $51,000 favorable.
C. $51,000 unfavorable.
D. $3,000 favorable.
E. $3,000 unfavorable.

Answer 1

Option D: = $3,000 Favorable Variance

Step-by-step explanation:

Total Direct Material Cost Variance = Material Price Variance + Material Usage Variance

Material Price Variance

Material Price Variance = (Actual Quantity of Direct Material Purchased × Actual Price) - (Actual Quantity of Direct Material Purchased × Standard Price)

If,

(Actual Quantity of Direct Material Purchased × Actual Price) > (Actual Quantity of Direct Material Purchased × Standard Price) = Unfavorable Variance

(Actual Quantity of Direct Material Purchased × Actual Price) < (Actual Quantity of Direct Material Purchased × Standard Price) = Favorable Variance

Working:

Material Price Variance of Product M = (47,000 pounds × $51 per pound) – (47,000 pounds × $50 per pound)

= $2,397,000 – $2,350,000

= $47,000 Unfavorable

Material Usage Variance

Material Usage Variance = (Actual Quantity of Direct Material Used × Standard Price) – (Standard Quantity of Direct Material Used × Standard Price)

If,

(Actual Quantity of Direct Material Used × Standard Price) > (Standard Quantity of Direct Material Used × Standard Price) = Unfavorable Variance

(Actual Quantity of Direct Material Used × Standard Price) < (Standard Quantity of Direct Material Used × Standard Price) = Favorable Variance

Material Usage Variance = (47,000 × $50 per pound) – (6 pounds per unit × 8000 Units × $50 per unit)

= $2,350,000 - $2,400,000

= $50,000 Favorable Variance

Total Direct Material Variance

Total Direct Material Cost Variance = $47,000 Unfavorable Variance + $50,000 Favorable Variance

= $3,000 Favorable Variance