Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows:
$$\begin{array} { l l }
\text { Materials: } & 1.5 \text { pounds per unit; } \$ 4.00 \text { per pound } \
\text { Labor: } & 2.0 \text { hours per unit; } \$ 18.00 \text { per hour }
\end{array}$$
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During the first quarter, Faas produced 5,000 units of this product. Actual direct materials costs were $29,750. Actual direct labor costs were $184,800.
For purposes of calculating the flexible budget variances, what is the direct materials cost variance?

Question

Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows:
$$\begin{array} { l l } 
\text { Materials: } & 1.5 \text { pounds per unit; } \$ 4.00 \text { per pound } \
\text { Labor: } & 2.0 \text { hours per unit; } \$ 18.00 \text { per hour }
\end{array}$$
-
During the first quarter, Faas produced 5,000 units of this product. Actual direct materials costs were $29,750. Actual direct labor costs were $184,800.
For purposes of calculating the flexible budget variances, what is the direct materials cost variance?

Quizplus · Accepted Answer

The direct materials cost variance is calculated as the difference between the standard cost and the actual cost. The standard cost for materials is calculated as 1.5 pounds per unit at $4.00 per pound for 5,000 units, which equals $30,000 (1.5 * $4.00 * 5,000). The actual cost is $29,750. Therefore, the variance is $30,000 - $29,750 = $250 favorable, since the actual cost is less than the standard cost.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts