Question

Allen Boating Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Allen uses standard costs to prepare its flexible budget. For the first quarter of the​ year, direct materials and direct labor standards for one of their popular products were as​ follows: Direct​ materials: 1 pound per​ unit; $ 11 per pound Direct​ labor: 4 hours per​ unit; $ 17 per hour Allen produced 2 comma 000 units during the quarter. At the end of the​ quarter, an examination of the direct materials records showed that the company used 7 comma 500 pounds of direct materials and actual total materials costs were $ 99 comma 900. What is the direct materials efficiency​ variance?

Answer 1

Direct material quantity (efficiency) variance= $60,500 unfavorable

Step-by-step explanation:

Giving the following information:

Standards:

Direct​ materials: 1 pound per​ unit; $ 11 per pound

Allen produced 2,000 units during the quarter.

Direct material used= 7,500 pounds

To calculate the direct material efficiency variance, we need to use the following formula:

Direct material quantity (efficiency) variance= (standard quantity - actual quantity)*standard price

standard quantity= 2,000*1= 2,000 pounds

Direct material quantity (efficiency) variance= (2,000 - 7,500)*11

Direct material quantity (efficiency) variance= $60,500 unfavorable

It is unfavorable because the company used more materials that estimated to produce 2,000 units.