Allen Boating Company manufactures specials metallic materials and decorative fi

Question

Allen Boating Company manufactures specials 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: 3 pounds per unit; $12 per pound Direct labor: 5 hours per unit; $16 per hour

Allen produced 8,000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 31,500 pounds of direct materials and actual total materials costs were $3000,000.

Calculate the direct material cost variance and the direct material efficiency variance.

Explanation / Answer

SQSP                                                   AQSP                                       AQAP

=24,000 x 12                                         =31,500 x 12                             =$300,000

=$288,000                                             =$378,000

SP= Standard Price per pound of Material= $12

SQ= Standard Quantity for Actual Production = 3 x 8,000=24,000 pounds

AQ= Actual Quantity of Material used =31,500 pounds

AQAP=Actual Material Cost= $300,000

Direct Material Cost =SQSP-AQAP=$288,000-$300,000= $12,000 U

Direct Material Efficiency Variance= SQSP- AQSP=$288,000-$378,000=$90,000 U

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