Chilé Products Ltd. Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell 65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of material were purchased out of which 46,000 ounces were used at a cost of $.37 per ounce.
Refer to the Chilé Products Ltd. information above. The direct materials usage variance for 2012 was:
A) $ 800 F.
B) $ 800 U.
C) $1,600 F.
D) $1,600 U.

Question

Quizplus · Accepted Answer

The direct materials usage variance is calculated as (Actual Quantity Used - Standard Quantity Allowed) x Standard Price. The standard quantity allowed for 80,000 bottles is 80,000 bottles * 0.60 ounces/bottle = 48,000 ounces. The actual quantity used is 46,000 ounces. The standard price is $0.40 per ounce. Therefore, the variance is (46,000 - 48,000) * $0.40 = -2,000 * $0.40 = -$800, which is favorable (F) because less material was used than expected.