Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00/kilogram) = $60.00/unit; direct labor (3.5 hours/unit × $20.00/hour) = $70.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: The direct materials usage variance for December, to the nearest dollar, was:
A) $1,800 unfavorable.
B) $1,800 favorable.
C) $59,400 unfavorable.
D) $59,400 favorable.

Question

Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12.00/kilogram) = $60.00/unit; direct labor (3.5 hours/unit × $20.00/hour) = $70.00/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December: The direct materials usage variance for December, to the nearest dollar, was:
A) $1,800 unfavorable. 
B) $1,800 favorable. 
C) $59,400 unfavorable. 
D) $59,400 favorable.

Quizplus · Accepted Answer

To calculate the direct materials usage variance, we need to compare the actual amount of materials used with the standard amount allowed for the units produced.

Actual amount of materials used in December = 10,000 kilograms (2,000 units x 5 kilograms per unit). 
Standard amount of materials allowed for 2,000 units produced in December = 2,000 units x 5 kilograms per unit = 10,000 kilograms.

Thus, there is no direct materials quantity variance in December. The direct materials usage variance is calculated as follows:

Direct materials usage variance = (Actual quantity of materials used - Standard quantity of materials allowed) x Standard price per unit

Direct materials usage variance = (10,000 - 10,000) x $12.00 = $0

Therefore, the direct materials usage variance for December is $0, which is favorable because it means that the actual quantity of materials used was exactly the same as the standard quantity of materials allowed.

Shade Company Adopted a Standard Cost System Several Years Ago