Garland Company uses a standard cost system. The standard for each finished unit
ID: 2576321 • Letter: G
Question
Garland Company uses a standard cost system. The standard for each finished unit of product allows for 2 pounds of plastic at $0.73 per pound. During December, Garland bought 4500 pounds of plastic at $0.76 per pound, and used 4000 pounds in the production of 1200 finished units of product.
a. What is the direct materials purchase price variance for the month of December?
b. What is the direct materials usage variance for the month of December?
Please indicate an unfavorable or favorable variance with "u" or "f", respectively.
Explanation / Answer
Standard cost for 1 unit = 2*0.73 = 1.46
Direct Material purchase Variance= (standard cost * actual purchase) - (actual cost* actual purchase )
= (0.73*4500)- ( 0.76*4500)
= 3280 - 3420
= 130 unfavourable
Direct Material usage variance =Actual Quantity x Standard Price - Standard Quantity x Standard Price
= Standard Cost of Actual Quantity - Standard Cost of Standard Quantity
= 4000*0.76. -. 1200*2*0.73
= 3040 - 1752 = 1288 unfavourable
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