Question

Regent Corp. uses a standard cost system to account for the costs of its one product. Materials standards are 2.9 pounds of material at $14 per pound, and labor standards are 4 hours of labor at a standard wage rate of $10. During July Regent Corp. produced 3,250 units. Materials purchased and used totaled 10,080 pounds at a total cost of $142,820. Payroll totaled $148,380 for 13,230 hours worked. a. Calculate the direct materials price variance. (Do not round your intermediate calculations. Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).) b. Calculate the direct materials quantity variance. (Indicate the effect of variance by selecting "Favorable", "Unfavorable", or "None" for no effect (i.e., zero variance).)

Answer 1

Regent Corp.

a) Direct Materials Price Variance:

Standard material price = $14 per pound

Actual material price = Total costs/Quantity used = $142,820/10,080 = $14.16865 per pound

(Price Variance = Actual price minus Standard price) x actual quantity

= ($14.16865 - $14) x 10,080

= $1,700 Unfavorable

b) Direct materials quantity variance = (actual quantity - standard quantity for actual production) x standard price = 10,080 - 9,425 x $14

= $9,170 Unfavorable

Step-by-step explanation:

a) Direct Materials Price Variance is the difference between the actual amount spent on direct materials during a given period and the amount that would have been spent had the materials been acquired at standard price.

b) Direct Materials Quantity Variance is the difference between the actual quantity used and the standard quantity. The figure obtained is then multiplied by the standard price to obtain the dollar value.

c) The addition of Direct Materials Price Variance and Direct Materials Quantity Variance gives the Direct Materials Cost Variance, which is the total variance incurred for direct materials.