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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.$720 U$500 U$500 F$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.720U720 U500 U500F500 F720 F

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Solution

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

  1. Calculate 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 = 0.5 pounds/unit * 35,000 units = 17,500 pounds.

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

  3. The direct materials quantity variance is calculated as (Standard Quantity - Actual Quantity) * Standard Price. So, the variance = (17,500 pounds - 18,000 pounds) * 1.00/pound=−1.00/pound = -500.

  4. The negative sign indicates that the variance is unfavorable (U), because the actual quantity of materials used was more than the standard quantity.

So, the direct materials quantity variance is $500 U.

This problem has been solved

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