In reviewing activity for July, the controller of Mathis, Inc., collected the fo

Question

In reviewing activity for July, the controller of Mathis, Inc., collected the following data concerning direct materials:

Required:

Compute the direct materials cost variances. (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Actual production $ 103,000 units Direct materials purchased (actual) $ 1,642,800 Standard cost of materials purchased $ 1,554,000 Standard direct materials costs per unit produced 14 Standard price times actual amount of materials used $ 1,405,950

Explanation / Answer

Purchase Computations:

Actual costs = $1,642,800

Actual inputs at standard price = $1,554,000

Price variance = ($1,554,000 – $1,642,800) = $88,800 Unfavourable

Actual inputs at standard price = $1,405,950

Flexible budget (Standard Allowed for Good Output) = $14 × 103,000 = $1,442,000

Efficiency variance = ($1,442,000 – $1,405,950) = $36,050 Favourable

Price variance = $88,800 Unfavourable

Efficiency variance = $36,050 Favourable

Direct materials cost variances = $88,800 U – $36,050 F = $52,750 U

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