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. The direct materials price variance was $1,750 U. Which of the following would be a logical explanation for this 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. The direct materials price variance was $1,750 U. Which of the following would be a logical explanation for this variance?

Quizplus · Accepted Answer

The direct materials price variance is calculated as the difference between the actual cost of materials and the standard cost of materials. A variance marked as "U" (unfavorable) indicates that the actual costs were higher than the standard costs. Since the variance is related to the price of materials, the logical explanation is that the company paid a higher price for the materials than allowed by standards.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts