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Multiple Choice QuestionABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct materials quantity variance.Multiple choice question.$500 F$500 U$720 U$720 F

Question

Multiple Choice QuestionABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ 1.00perpound;Directlabor:1hour@1.00 per pound; Direct labor: 1 hour @ 10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of 17,280;Directlabor:36,000hoursatatotalcostof17,280; Direct labor: 36,000 hours at a total cost of 374,400. Compute the direct materials quantity variance.Multiple choice question.500F500 F500 U720U720 U720 F

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Solution

To compute the direct materials quantity variance, follow these steps:

  1. Compute the standard quantity of direct materials for the actual production. The standard set by the company is 0.5 pounds per unit of product. So, for 35,000 units, the standard quantity is 0.5 pounds/unit * 35,000 units = 17,500 pounds.

  2. Compute the actual quantity of direct materials used, which is given as 18,000 pounds.

  3. Compute the difference between the actual quantity and the standard quantity. The difference is 18,000 pounds - 17,500 pounds = 500 pounds.

  4. Multiply this difference by the standard cost per pound to get the direct materials quantity variance. The variance is 500 pounds * 1.00/pound=1.00/pound = 500.

  5. Determine if this is favorable (F) or unfavorable (U). If the actual quantity is greater than the standard quantity, it's unfavorable because more materials were used than expected. So, the variance is $500 U.

So, the correct answer is $500 U.

This problem has been solved

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