XYZ 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.
Question
XYZ Company makes a product and has calculated the following amounts for direct materials: AQ x AP = 145,000; SQ x SP = $152,000. Compute the direct materials quantity variance.Multiple choice question.
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 know that:
AQ x SP = 152,000
To find the variance, we subtract the second equation from the first:
(AQ x SP) - (SQ x SP) = 152,000 = -$7,000
So, the direct materials quantity variance is -$7,000. This is a negative variance, which means that more materials were used than expected.
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