XYZ Company makes one product and has calculated the following amounts for direct materials: Actual cost: AQ x AP = $150,000; AQ x SP = $145,000; Standard cost: SQ x SP = $152,000. Compute the direct materials variance.Multiple choice question.
Question
XYZ Company makes one product and has calculated the following amounts for direct materials: Actual cost: AQ x AP = 145,000; Standard cost: SQ x SP = $152,000. Compute the direct materials variance.Multiple choice question.
Solution
To calculate the direct materials variance, we need to subtract the actual cost from the standard cost.
The formula for direct materials variance is:
Direct Materials Variance = Standard Cost - Actual Cost
Given in the problem, we have:
Standard Cost (SC) = 150,000
Substitute these values into the formula:
Direct Materials Variance = SC - AC Direct Materials Variance = 150,000 Direct Materials Variance = $2,000
So, the direct materials variance is $2,000. This is a favorable variance because the actual cost is less than the standard cost.
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