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Topic
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Wiley Question –
A company manufactures a product that has the direct material standard cost presented below. Budged and actual information for the current month for the manufacturer of the finished product and the purchase and use fo teh direct material are also presented.
Standard cost for direct material
1.60 lb @ $2.50 per lb. = $4.00
Budget Actual
Finished goods in units 30,000 32,000
Direct material usage in pounds 48,000 51,000
Direct mateiral purchases in pounds 48,000 50,000
total cost of direct materials $120,000 $120,000
The direct mateiral efficiency (usage) variance for the current month is
A: $500 favorable
B: $8000 unfavorable
C: $3000 favorable
D: $7500 unfavorable
Answer: $500 favorable. This answer is correct. This alternative correctly calculates the direct material efficiency (usage) variance as the difference between the standard pounds allowed for the actual units produced (32,000 × 1.60 = 51,200) and the actual pounds used (51,000) times the standard price ($2.50).
Since the dm usage variance is Standard Price*(Actual quantity-standard quanitty), why not use 2.5*(51,000-48,000), with 48,000 being the budget direct mateirals used, rather than use 51,200 which is the standard pounds allowed for actual units produced?
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