Faas Marine Stores Company manufactures decorative fittings for luxury yachts that 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: Materials: 1.5 pounds per unit; $4.00 per pound
Labor: 2.0 hours per unit; $18.00 per hour
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 the direct materials cost variance was $1,750 U. Which of the following would be a logical explanation for this variance?

Question

Quizplus · Accepted Answer

The direct materials cost variance is unfavorable, indicating that the company paid a higher price for the materials than allowed by the standard cost. The variance formula is (actual quantity x actual price) - (standard quantity x standard price), and since the actual quantity used was higher than the standard quantity, the variance is unfavorable. Therefore, the reason for the variance is that the company paid a higher price for the materials.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts