Question

Tip Top Corp. produces a product that requires 14 standard gallons per unit. The standard price is $6.00 per gallon. If 3,500 units required 51,000 gallons, which were purchased at $5.70 per gallon, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance? Use the minus sign to enter favorable variances as negative numbers.

Answer 1

Variance is favorable when Standard quantity/ price is higher than actual quantity/ price.

a. Direct Materials Price Variance

= (Actual price - Standard price) * Actual quantity

= (5.70 - 6.00) * 51,000

= $15,300 Favorable

b. Direct Materials Quantity Variance

= (Actual quantity - Standard quantity) * Standard price

= (51,000 - (14 * 3,500)) * 6

= $12,000 Unfavorable

C. Direct Materials Cost Variance

= Direct Materials Price Variance + Direct Materials Quantity Variance

= 15,300 + (-12,000)

= $3,300 Favorable