Tip Top Corp. produces a product that requires 12 standard gallons per unit. The

Question

Tip Top Corp. produces a product that requires 12 standard gallons per unit. The standard price is $3 per gallon. If 2,300 units required 28,200 gallons, which were purchased at $2.85 per gallon, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

a. Direct materials price variance $ Favorable b. Direct materials quantity variance $ Unfavorable c. Direct materials cost variance $

Explanation / Answer

Direct Material Price Variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U Direct Material price variance = (AP-SP)*AQ SQ = Standard Quantity AP = Actual price per unit = $ 2.85 SP = Standard price per unit = $ 3 AQ = Actual quantity consumed= 28,200 F= Favourable U = Unfavourable Direct Material Price Variance AP (a) SP (b) Variance (c=b-a) AQ (d) Total variance (e=c*d) F/U $                 2.85 $           3.00 0.15      28,200                                   4,230 F Direct Material Quantity Variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U Direct Material quantity variance = (AQ-SQ)*SP AQ = Actual quantity consumed= 28,200 SQ = Standard quantity = 2,300 * 12 = 27,600 SP = Standard price per unit = $ 3 F= Favourable U = Unfavourable Direct Material Quantity Variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U                 28,200           27,600 -600 $      3.00 -1,800 U (2,300*12) Direct Material Cost Variance AP*AQ (a) SP*SQ (b) Variance (c=b-a) F/U Direct Material Cost Variance = (SP*SQ) - (AP*AQ) SP = Standard price per unit = $ 3 SQ = Standard quantity = 2,300 * 12 = 27,600 AP = Actual price per unit = $ 2.85 AQ = Actual quantity consumed= 28,200 F= Favourable U = Unfavourable Direct Material Cost Variance AP*AQ (a) SP*SQ (b) Variance (c=b-a) F/U                 80,370           82,800                       2,430 F ($2.85*28,200) ($3*27,600)

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