Ask a New Question
Menu

Direct Materials Variances

Alvarado Company produces a product that requires 2.5 standard pounds per unit. The standard price is $3.70 per pound. 15,100 units used 36,600 pounds, which were purchased at $3.85 per pound.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
What is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? Round your answers to the nearest dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Line Item Description Amount Variance
a. Direct materials price variance $fill in the blank 2

b. Direct materials quantity variance $fill in the blank 4

c. Direct materials cost variance $fill in the blank 6

1 answer

To calculate the direct materials variances, we need to use the following formulas:

  1. Direct Materials Price Variance (MPV): \[ MPV = (Actual Price - Standard Price) \times Actual Quantity \]

  2. Direct Materials Quantity Variance (MQV): \[ MQV = (Actual Quantity - Standard Quantity) \times Standard Price \]

  3. Direct Materials Cost Variance (MCV): \[ MCV = MPV + MQV \]

Now, let's break down the calculations for Alvarado Company.

Given Data:

  • Standard Price (SP) = $3.70 per pound
  • Actual Price (AP) = $3.85 per pound
  • Actual Quantity (AQ) = 36,600 pounds
  • Standard Quantity (SQ) = Standard pounds per unit × number of units produced \[ SQ = 2.5 \text{ pounds/unit} \times 15,100 \text{ units} = 37,750 \text{ pounds} \]

Calculate the variances:

(a) Direct materials price variance: \[ MPV = (AP - SP) \times AQ = (3.85 - 3.70) \times 36,600 = 0.15 \times 36,600 = 5,490 \] This is an unfavorable variance because the actual price is higher than the standard price.

(b) Direct materials quantity variance: \[ MQV = (AQ - SQ) \times SP = (36,600 - 37,750) \times 3.70 = (-1,150) \times 3.70 = -4,255 \] This is a favorable variance because the actual quantity used is less than the standard quantity.

(c) Direct materials cost variance: \[ MCV = MPV + MQV = 5,490 + (-4,255) = 1,235 \] This variance is unfavorable, as it results from the combination of an unfavorable price variance and a favorable quantity variance.

Final Answers

So the results are as follows:

a. Direct materials price variance: $5,490 (unfavorable, so enter as +5490)

b. Direct materials quantity variance: $4,255 (favorable, so enter as -4255)

c. Direct materials cost variance: $1,235 (unfavorable, so enter as +1235)

Summary of Filled Blanks

  • a. Direct materials price variance: 5490
  • b. Direct materials quantity variance: -4255
  • c. Direct materials cost variance: 1235