[Rhea]

A company manufactures a product that has the direct material standard cost presented below. Budgeted and actual information for the current month for the manufacture of the finished product and the purchase and use of the direct material are also presented.

Standard cost for direct material

1.60 lb. @ $2.50 per lb. = $4.00

Finished goods (in units) Budget Actual

30,000 32,000

Direct material usage (in pounds)

48,000 51,000

Direct material purchases (in pounds)

48,000 50,000

Total cost of direct material purchases

$120,000 $120,000

The direct material efficiency (usage) variance for the current month is

$500 favorable.

$3,000 favorable.

$7,500 unfavorable.

$8,000 unfavorable.

The right answer is “$500 favorable”

Can any one explain me this?

Rhea
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