Direct Materials Variances The following data relate to the direct materials cost for the production of 30,000 automobile tires: Actual: 438,000 lb. at $3.00 Standard: 446,000 lb. at $2.95 a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Price variance $ Unfavorable Quantity variance $ Favorable Total direct materials cost variance $ Favorable b. The direct materials price variance should normally be reported to the Purchasing Department . If lower amounts of direct materials had been used because of production efficiencies, the variance would be reported to the Production Supervisor . If the favorable use of raw materials had been caused by the purchase of higher-quality raw materials, the variance should be reported to the Purchasing Department .
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Direct Materials Variances
The following data relate to the direct materials cost for the production of 30,000 automobile tires:
| Actual: | 438,000 lb. at $3.00 |
| Standard: | 446,000 lb. at $2.95 |
a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
| Price variance | $ | Unfavorable |
| Quantity variance | $ | Favorable |
| Total direct materials cost variance | $ | Favorable |
b. The direct materials price variance should normally be reported to the Purchasing Department . If lower amounts of direct materials had been used because of production efficiencies, the variance would be reported to the Production Supervisor . If the favorable use of raw materials had been caused by the purchase of higher-quality raw materials, the variance should be reported to the Purchasing Department .
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