Direct material price variances, Cost Accounting

Direct Material Price Variances

The two direct material price variances can be summarized given as:

1303_Direct Material Price Variances.png

From our basic data first before the beginning of the discussion on variances, then we can calculate as given:

i.) Direct Materials price variance= (AQ X AP) - (AQ X SP)

                                               = (6,500 X 3.80) - (6,500 X 4)

                                               = 6,500 (3.80 - 4)

                                              = Kshs.1,300  Favourable

The variance is favourable since we utilized less costs than the standard cost.

ii) Direct Materials usage variance   = (AQ X AP) - (SQ X SP)

                                                = (6,500 X 3.80) - (6,000 X 4)

                                                = 24,700 - 24,000

                                                = 700 Unfavourable

Note that the above equation total materials variance agrees along with the specified as:

Total Materials Variance      = Price Variance + Usage (Efficiency) Variance

                                        = 1300 (Favourable) + 2000 (Unfavourable)

                                        = Kshs.700 unfavourable.

Tutorial Note Please makes sure you follow the basics of the calculation of the direct material variances calculations hence you can effectively follow the given variances sections.

Posted Date: 2/7/2013 6:42:14 AM | Location : United States

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