Direct Materials Variances The following data relate to the direct materials cos

Question

Direct Materials Variances

The following data relate to the direct materials cost for the production of 10,000 automobile tires:

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

b. The direct materials price variance should normally be reported to the Purchasing Department . If lower amounts of direct materials had been used because of production efficiencies, the variance would be reported to the Production Supervisor . If the favorable use of raw materials had been caused by the purchase of higher-quality raw materials, the variance should be reported to the Purchasing Department .

Explanation / Answer

Direct materials price variance = (actual price - standard price) x actual quantity
=(2.8-2.75)*145000
=7250 and it is unfavourable since actual price higher than standard price

Direct materials quantity variance = (Actual quantity - standard quantity) x standard price
=(145000-150000)*2.75
=-13,750 and it is favourable
Total direct material cost variance= 7250-13750=-6500 and it is favourable

b) Th answers in bold are correct

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