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. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $29,750.
How much is the direct materials price 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. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $29,750.
How much is the direct materials price variance?

Quizplus · Accepted Answer

The direct materials price variance can be calculated as the difference between the actual cost of materials and the standard cost of materials for the actual quantity purchased. The standard cost for 7,000 pounds of material is $7,000 \text{ pounds} \times \$4.00 \text{ per pound} = \$28,000$. The actual cost was $29,750. Therefore, the direct materials price variance is $ \$29,750 - \$28,000 = \$1,750 \text{ U}$, indicating an unfavorable variance since the actual cost was higher than the standard cost.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts