Prior to the current operating period, JDK Metal Works estimated they would prod

Question

Prior to the current operating period, JDK Metal Works estimated they would produce and sell 10,000 units of one version of the product they make. Each unit requires 20 ounces of Gray308, a custom blended metal that is available from several suppliers on demand. Estimates from purchasing suggested the cost per ounce wil be 30.50 through the budget period. Direct labor, which can easily be adjusted for excess volume, based on the 10,000 units, was budgeted at 30 minutes per unit at $15 per hour. During the production period, JDK produced and sold 10,500 units, requiring 201,000 ounces of Gray308 costing a total of $102,000. Also during the period, the production process consumed 5,400 hours of direct labor, costing $80,000. 1. What is the Direct Materials Volume Variance? 2. What is the Direct Materials Price Variance?

Explanation / Answer

1. Direct material volume variance= SP(SQ-AQ)

=0.50(10500*20-201000)=4500 (FAVOURABLE)

2.Direct material price variance=AQ(SP-AP)

=201000*0.5-102000=1500(unfavourable)

Notes:

SP=STANDARD PRICE

AP =ACTUAL PRICE

SQ = STANDARD QUANTITY

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