Epley Corporation makes a product with the following standard costs:

In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

-The materials quantity variance for July is:
A)$2,070 F
B)$2,070 U
C)$1,863 F
D)$1,863 U

Question

Epley Corporation makes a product with the following standard costs:

In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

-The materials quantity variance for July is:
A)$2,070 F 
B)$2,070 U 
C)$1,863 F 
D)$1,863 U

Quizplus · Accepted Answer

The materials quantity variance formula is (actual quantity used - standard quantity allowed) x standard price per unit. 
Plugging in the values given: 
(60,000 - 45,000) x $0.04 = $2,100 U 
However, since we used more materials than planned (actual > standard), the variance is unfavorable. Therefore, the answer is B) $2,070 U which is the closest option.

Epley Corporation Makes a Product with the Following Standard Costs