Diekow Productions manufactured and sold 1,000 products at $11,000 each during t

Question

Diekow Productions manufactured and sold 1,000 products at $11,000 each during the past year. At the beginning of the year, production had been set at 1,200 products; direct materials standards had been set at 100 pounds of direct materials at $2 per pound for each product produced. During the year, the company purchased and used 98,000 pounds of direct materials; the cost was $2.04 per pound.

Calculate Diekow Production's direct materials price and quantity variances for the year.

Direct materials price variance: $__________ (Favorable / Unfavorable / No effect)
Direct materials quantity variance: $__________ (Favorable / Unfavorable / No effect)

Explanation / Answer

actual quantitiy = 98,000 pounds standard quantity = 1,000*100 = 100,000 standard price = $2 per pound actual price = $2.04 per pound Materials price variance = AQ(AP-SP) = 98,000*(2.04 - 2) = 3920, which is $3,920 unfavorable Materials efficiency variance = SP(AQ-SQ) = 2(98,000 - 100,000) = -4,000 which is $4,000 favorable

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