Mystic Falls Inc. Mystic Falls Inc. bottles and sells a popular soft drink. In 2011, the company had expected to sell 1,000,000 bottles but actually bottled and sold 900,000 bottles. The standard direct materials cost for each bottle is $.40 comprised of 10 ounces at a cost of $.04 per ounce. During 2011, 10,000,000 ounces of material were purchased out of which 9,200,000 ounces were used at a cost of $.05 per ounce.
Refer to the Mystic Falls Inc. information above. The direct materials usage variance for 2011 was:
A) $ 8,000 U.
B) $ 8,000 F.
C) $40,000 U.
D) $40,000 F.

Question

Quizplus · Accepted Answer

The direct materials usage variance is calculated as (Actual Quantity Used - Standard Quantity Allowed) x Standard Cost per Unit. Here, the actual quantity used is 9,200,000 ounces, and the standard quantity allowed for 900,000 bottles is 9,000,000 ounces (900,000 bottles * 10 ounces per bottle). The standard cost per ounce is $0.04. Thus, the variance is (9,200,000 - 9,000,000) x $0.04 = 200,000 x $0.04 = $8,000 Unfavorable, because more materials were used than the standard allowed.