McKnight Enterprises, Inc. developed standard costs for direct material and dire

Question

McKnight Enterprises, Inc. developed standard costs for direct material and direct labor. In 2012 McKnight estimated the following standard costs for one of their major products, the 50-gallon plastic container. Direct materials Direct labor Standard quantity 0.25 pounds 0.03 hours Standard price $40 per pound $18 per hour During August, McKnight produced and sold 8,000 containers using 1,900 pounds of direct materials at an average cost per pound of $41 and 250 direct labor hours at an average wage of $18.25 per hour. Determine the following variances for August by completing the table below For each item, calculate the proper amount, and then indicate if that amount would be favorable or unfavorable Total Direct Material Cost Variance Direct Material Price Variance Direct Material Quantity Variance Formulas a. Total direct material cost variance. Actual direct material cost Standard direct material cost b. Direct material price variance. - (AP-SP) x AQ c. Direct material quantity variance. (AQ-SQ) SP

Explanation / Answer

Number of units produced = 8,000
Actual quantity used = 1,900 pounds
Actual price = $41 per pound

Standard quantity allowed per unit = 0.25 pounds
Standard price = $40 per pound

Standard quantity allowed = Standard quantity allowed per unit * Number of units produced
Standard quantity allowed = 0.25 * 8,000
Standard quantity allowed = 2,000 pounds

Standard direct materials cost = Standard quantity allowed * Standard price
Standard direct materials cost = 2,000 * $40
Standard direct materials cost = $80,000

Actual direct materials cost = Actual quantity used * Actual price
Actual direct materials cost = 1,900 * $41
Actual direct materials cost = $77,900

Total direct material cost variance = Actual direct materials cost - Standard direct materials cost
Total direct material cost variance = $77,900 - $80,000
Total direct material cost variance = $2,100 Favorable

Direct material price variance = (Actual price - Standard price) * Actual quantity used
Direct material price variance = ($41 - $40) * 1,900
Direct material price variance = $1,900 Unfavorable

Direct material quantity variance = (Actual quantity used - Standard quantity allowed) * Standard price
Direct material quantity variance = (1,900 - 2,000) * $40
Direct material quantity variance = $4,000 Favorable

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