Direct Material Price Variances
The two direct material price variances can be summarized given as:
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.