Direct Materials Variances Bellingham Company produces a product that requires 2.5 standard pounds per unit. The standard price is $3.75 per pound. If 15,000 units used 36,000 pounds, which were purchased at $4.00 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance

(a) $9,000 U

(b) $5,625 F

(c) $3,375 U

Explanation:

Given that,

Production of a Product requires = 2.5 standard pounds per unit

Standard price = $3.75 per pound

Number of units = 15,000

Pounds of material purchased = 36,000

Purchasing price = $4.00 per pound

(a) Direct material price variance:

= [ (Actual cost - Standard cost) * Actual quantity purchased]

= [ ($4 - $3.75) * 36,000]

= $9,000 unfavorable variance

(b) Quantity variance:

= [ (Actual quantity used - Standard quantity used) * Standard cost per unit]

= [ (36,000 - 37,500) * 3.75]

= 5,625 favorable variance

Workings:

Standard quantity used:

= No. of units * Standard price

= 15,000 * 2.5 standard pounds per unit

= 37,500

(c) Cost variance:

= Direct material quantity variance + Direct material price variance

= 5,625 favorable variance + ( - $9,000 unfavorable variance)

= $3,375 unfavorable variance