ABC Company maintains a standard cost system; as such, all inventories, includin
ID: 2532995 • Letter: A
Question
ABC Company maintains a standard cost system; as such, all inventories, including materials, are carried on the books at standard cost. Last period, ABC used 5,000 pounds of Material H to produce 800 units of Product C8. The company has established a standard of 7 pounds of Material H per unit of C8, at a price of $7.50 per pound of material. During the period the inventory for Material H decreased by 2,000 pounds. The company spent $25,000 during the period to purchase material H.
What is the direct materials efficiency variance for the period? (Be sure to note if it is favorable or unfavorable.)
What is the materials price variance for the period? (Be sure to note if it is favorable or unfavorable.)
Explanation / Answer
Direct material effciency variance = (Standard hour-actual hour)Standard price
= (800*7-5000)*7.50
Direct material efficiency varianc e= 4500 Favorable
Direct material price variance = (Standard rate-actual rate)actual quantity
= (7.5*3000-25000)
Direct material price variance = 2500 Unfavorable