Chapter 13, Problem 13.20E

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

Chapter
Section

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Direct materials variancesThe following data relate to the direct materials cost for the production of 20,000 automobile tires: a.Determine the price variance, quantity variance, and total direct materials cost variance. b. To whom should the variances be reported for analysis and control?

To determine

Concept Introduction:

Direct material variances:

Direct material variances refer to the difference between the standard direct material cost and actual direct material cost incurred. Direct material cost variances are categorized into following two categories:

1. Direct material Rate variance: this variance shows the difference of standard rate and actual rate of material. The formula to calculate this variance is as follows:
2.   Direct material rate variance = (Actual rate – Standard rate) ×Actual Quantity

3. Direct material usage variance: this variance shows the difference of standard usage and actual usage of material. The formula to calculate this variance is as follows:
4.   Direct material usage variance = (Actual Quantity – Standard Quantity)×Standard rate

5. Direct material cost variance: this variance shows the difference of standard cost and actual cost of material. The formula to calculate this variance is as follows:
6.   Direct material cost variance = Direct material rate variance + Direct material usage variance

Requirement-1:

To Calculate:

The Direct Material Price, Quantity and Cost variances

Explanation

The Direct Material Price, Quantity and Cost variances are calculated as follows:

 Direct Material Price Variance: Actual Price (A) $2.65 Per lbs Standard Price (B)$ 2.50 Per lbs Actual Quantity (C) 80000 Ounces Direct Material Price Variance (D)= (A-B)*C = \$ 12,000.00 Unfavorable
To determine

Concept Introduction:

Direct material variances:

Direct material variances refer to the difference between the standard direct material cost and actual direct material cost incurred. Direct material cost variances are categorized into following two categories:

1. Direct material Rate variance: this variance shows the difference of standard rate and actual rate of material. The formula to calculate this variance is as follows:
2.   Direct material rate variance = (Actual rate – Standard rate) ×Actual Quantity

3. Direct material usage variance: this variance shows the difference of standard usage and actual usage of material. The formula to calculate this variance is as follows:
4.   Direct material usage variance = (Actual Quantity – Standard Quantity)×Standard rate

5. Direct material cost variance: this variance shows the difference of standard cost and actual cost of material. The formula to calculate this variance is as follows:
6.   Direct material cost variance = Direct material rate variance + Direct material usage variance

Requirement-2:

To Indicate:

The Person to whom the variances should be reported

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