Sunshine Pty Ltd manufacturers curtains and establishes the following standards:

Question

Sunshine Pty Ltd manufacturers curtains and establishes the following standards:

Standard direct materials for each curtain (13 metres @$27.00 per metre) $351
Budgeted number of curtains to be produced per month 2100
The following information relates to the month of March 2018:
Purchase of direct materials 25000 metres for $625000
Actual direct material used 33000 metres
Actual production 2200 curtains
a)What is the direct materials price variance?
b)What is the direct material quantity variance?
(Please provide detailed solutions to the answers)

Explanation / Answer

a)What is the direct materials price variance?

( standard price - Actual price ) * Actual Quantity purchased

Actual price = 625000 / 25000 = $ 25 per meter

direct materials price variance = ( 27 - 25 ) * 25000 = $ 50000 ( fav. )

b)What is the direct material quantity variance?

( standard quantity allowed - Actual quantity used ) * standard price

standard quantity allowed = 2200 * 13 = $ 28600

direct material quantity variance = ( 28600 - 33000 ) * 27 = $ 118800 ( unfav. )

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