cost variance Tercer reports the following for one of its products. Direct materials standard (4 lbs. @ $2 per lb.) $ 8 per finished unit Actual finished units produced 60,000 units Actual cost of direct materials used $ 535,000 Compute the total direct materials cost variance and classify it as favorable or unfavorable.

Total direct materials cost variance is $66,000 and it is favorable.

Explanation:

Actual cost = Actual Quantity * Actual Price

= 300,000 * $1.78

= $534,000

Actual cost with selling price = Actual Quantity * Selling Price

= 300,000 * $2.00

= $600,000

The total direct materials cost variance is computed as:

Total direct materials cost variance = Actual cost with selling price - Actual Cost

= $600,000 - $534,000

= $66,000

It is favorable.

Working Note:

Actual Price per lbs = $534,000 / 300,000

= $1.78