Multiple Choice QuestionXYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = $150,000; AQ x SP = $145,000; SQ x SP = $152,000. Compute the direct materials quantity variance.Multiple choice question.$5,000 U$7,000 U$5,000 F$7,000 F
Question
Multiple Choice QuestionXYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = 145,000; SQ x SP = 5,000 U5,000 F$7,000 F
Solution
The direct materials quantity variance is calculated as the difference between the actual quantity of materials used in production (AQ) and the standard quantity of materials that should have been used (SQ), multiplied by the standard price per unit of material (SP).
The formula is: (AQ - SQ) x SP
From the question, we have:
AQ x AP = 145,000 SQ x SP = $152,000
We can rearrange the formula for AQ x SP to find AQ: AQ = $145,000 / SP
Substitute this into the formula for the variance: Variance = (($145,000 / SP) - SQ) x SP
We can also rearrange the formula for SQ x SP to find SQ: SQ = $152,000 / SP
Substitute this into the formula for the variance: Variance = ((152,000 / SP)) x SP
Simplify this to find: Variance = 152,000 = -$7,000
The negative sign indicates that the variance is unfavorable, so the answer is $7,000 U.
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