Chapter 15, Problem 15.3ME

To determine

Concept Introduction- Direct material price variance-

Direct material price variance is the difference between standard cost and the actual cost of the actual material used in the production. If standard cost is more than the actual cost, then the variance calculated will be favourable. If standard cost is less than the actual cost, then the variance calculated will be unfavourable. It is calculated as follows-

  $Directmaterialpricevariance=\left(Standardcost–Actualcost\right)*Actualquantityused$

Direct material usage variance-

Direct material usage variance is the difference between standard quantity of material to be used in actual production and the actual quantity of the material used in the production. If standard quantity is more than the actual quantity, then the variance calculated will be favourable. If standard quantity is less than the actual quantity, then the variance calculated will be unfavourable. It is calculated as follows-

  $Directmaterialusagevariance=\left(Standardquantity-Actualquantity\right)*Standardcost$

To Calculate- Direct material price variance and direct material usage variance