Actual: 53,500 lbs. at $2.60 $139,100
Standard: 55,120 lbs. at $2.50 $137,800
a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance.
b. To whom should the variances be reported for analysis and control?
Answer:
a. Price variance:
Direct Materials
Price Variance
Direct Materials
Price Variance
Direct Materials
Price Variance
Quantity variance:
Direct Materials
Quantity Variance
Direct Materials
Quantity Variance
= (Actual Price – Standard Price) × Actual Quantity
= ($2.60 per lb. – $2.50 per lb.) × 53,500 lbs.
= $5,350 Unfavorable
= (Actual Quantity – Standard Quantity) × Standard Price
= (53,500 lbs. – 55,120 lbs.) × $2.50 per lb.
Direct Materials
Quantity Variance
= –$4,050 Favorable
Total direct materials cost variance:
Direct Materials
Cost Variance =
Direct Materials Price Variance +
Direct Materials Quantity Variance
Direct Materials
Cost Variance
Direct Materials
Cost Variance
= $5,350 – $4,050
= $1,300 Unfavorable
b. The direct materials price variance should normally be reported to the
Purchasing Department, which may or may not be able to control this variance.
If materials of the same quality were purchased from another supplier at a price
higher than the standard price, the variance was controllable. However, if the
variance resulted from a market-wide price increase, the variance was not
subject to control.
The direct materials quantity variance should be reported to the proper level of
operating management. For example, if lower amounts of direct materials had
been used because of production efficiencies, the variance would be reported
to the production supervisor. However, if the favorable use of raw materials had
been caused by the purchase of higher-quality raw materials, the variance
should be reported to the Purchasing Department.
The total materials cost variance should be reported to senior plant management,
such as the plant manager or materials manager.