The following data relate to the direct materials cost for the production of 2,300 automobile tires: Actual: 52,300 lbs. at $1.8 per lb. Standard: 50,700 lbs. at $1.85 per lb. 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. Direct Materials Price Variance $ ________ _________ Direct Materials Quantity Variance $. ________ ________ Total Direct Materials Cost Variance $. _______ ________ b. The direct materials price variance should normally be reported to the _____ . When lower amounts of direct materials are used because of production efficiencies, the variance would be reported to the _____ . When the favorable use of raw materials is caused by the purchase of higher-quality raw materials, the variance should be reported to the _____ .
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.
The following data relate to the direct materials cost for the production of 2,300 automobile tires:
| Actual: | 52,300 lbs. at $1.8 per lb. | |
| Standard: | 50,700 lbs. at $1.85 per lb. |
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.
| Direct Materials Price Variance | $ ________ | _________ |
| Direct Materials Quantity Variance | $. ________ |
________ |
| Total Direct Materials Cost Variance | $. _______ | ________ |
b. The direct materials price variance should normally be reported to the _____ . When lower amounts of direct materials are used because of production efficiencies, the variance would be reported to the _____ . When the favorable use of raw materials is caused by the purchase of higher-quality raw materials, the variance should be reported to the _____ .
Direct Material price variance = (Actual price per lb. - Standard price per lb.)*Actual quantity purchased
Direct Material quantity variance = (Actual quantity used - Standard quantity allowed)*Standard rate per lb.
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