Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had

Question

Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell 65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of material were purchased out of which 46,000 ounces were used at a cost of $.37 per ounce.

Refer to the Chilé Products Ltd. information above. The direct materials usage variance for 2012 was:

$ 800 U.

$1,600 U.

$ 800 F.

$1,600 F.

$ 800 U.

$1,600 U.

$ 800 F.

$1,600 F.

Explanation / Answer

Direct material usage variance = (actual usage - standard usage for actual production) x Standard price per unit of direct material

Standard usage for actual production

= actual production x standard usage of direct material per unit

= 80000 bottles x 0.60 ounces / bottle = 48000 ounces

Direct material usage variance

= (actual usage - standard usage for actual production) x Standard price per unit of direct material

= (46000 ounces - 48000 ounces) x $0.40/ounce

= $800 Favourable

Answer: c) $800 favourable

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