ABC Companys standard materials cost per unit of output is 1

ABC Company’s standard materials cost per unit of output is $15 (5 pounds * $3).  During February, ABC Company uses 5,000 pounds of materials, which cost $14,250 in making 1,200 units.  Calculate the total, price and quantity materials variances given this information.

Solution

direct material price variance

=>actual quantity * (actual price - standard price)

here,

actual quantity = 5,000 pounds.

actual price per pound = actual cost / actual quantity =>$14,250 / 5,000

=>$2.85 per pound.

standard price = $3 per pound.

now,

direct material price variance = 5,000 pounds * ($2.85 - $3.00)

=>$750 favourable.....(favourable since actual price is less than standard price).

direct material quantity variance

=> standard price (actual quantity - standard quantity)

here,

standard price =$3

actual quantity = 5,000 pounds.

standard quantity = 1,200 units * 5 pounds

=>6,000 pounds.

=>$3*(5000 - 6000)

=>$3,000 (favourable).....(since actual quanitity is less than standard quantity we have favorable variance).

now,

direct material total variance

(standard quantity * standard price) - (actual quanity * actual price)

=> (6.000 * $3.00) - (5,000*$2.85)

=>$3,750.(favorable).