EX 23-4 direct materials variances

The following data relate to the direct materials cost for the production of 2,400 automobile tires:

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.