In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sal
ID: 2469315 • Letter: I
Question
In early 2012, Duncan Manufacturing Inc. had budgeted for the production and sale of 20,000 units at a sales price of $25 per unit. The following information is available regarding the standard cost the each unit:
Direct Materials: $6.00 (3 pounds at $2.00 per lb)
Direct Labor: $3.50 (10 minutes of assembly at $.35 per minute)
Actual results for 2012 were determined to be as follows:
Number of units produced and sold: 18,000 units
Sales Revenue: $477,000 ($26.5 per unit)
Direct Materials cost: $199,925 (58,500 lbs purchased and used at $2.05 per lb)
Direct Labor Cost: $51,300 (171,000 minutes at $.30 per minute)
Required: Compute each of the following variances. Indicate whether the various is favorable or unfavorable.
A. Direct Materials Price Variance
B. Direct Materials Usage Variance
Explanation / Answer
A.Direct Material Price variance:
=Actual quantity purchased(Standard Price-Actual Price)
=58,500(2-2.05)
= $2,925(Adverse)
B.Direct Material usage variance:
=Standard price(Standard quantity required for actual output-Actual quantity consumed)
=2(18000*3-58500)
=2(4500)
=$9,000(Adverse)
Note:Acutal direct material cost written in question $ 199,925 is wrong.It should be 119,925(58,500*$2.05)