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10 June, 14:21

Hart applies management by exception by investigating direct materials variances of more than 5% of actual direct materials costs. Which direct materials variances will Hart investigate further?

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Answers (1)
  1. 10 June, 17:30
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    The Direct material Price Variance must be investigate as it is unfavorable.

    Explanation:

    The Direct material Price Variance is computed as:

    Actual Cost

    = Actual Quantity * Actual Price

    = 22,060 * $12.40

    = $273,544

    = Actual Quantity * Selling Price

    = 22,060 * $12.30

    = $271,338

    Direct material Price Variance = $271,338 - $273,544

    = - $2,206 (unfavorable)

    The Direct Material Quantity Variance is computed:

    Standard Cost = Standard Quantity * Standard Price

    = 24,480 * $12.30

    = $301,104

    Direct Material Quantity Variance = $301,104 - $271,338

    = $29,766 (Favorable)
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