Question

Oceanside Marine Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Oceanside uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 2 pound per unit; $12 per pound Direct labor: 4 hours per unit; $18 per hour Oceanside produced 3000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 7500 pounds of direct materials and actual total materials costs were $98,400. What is the direct materials cost variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) $8400 Favorable $3360 Favorable $3360 Unfavorable $8400 Unfavorable

Answer 1

Answer:

$8400 Unfavorable

Explanation:

Direct Material cost Variance = (Standard Price - Actual Price) $\times$ Actual Quantity

Standard Cost for Actual Production = 3,000 units $\times$ 2 pound per unit @ $12 per pound = 6,000 $\times$ $12 = $72,000

Provided actual material costs = $98,400

Actual price = $98,400/7,500 = $13.12

Direct Material Cost Variance = ($12 - $13.12) $\times$ 7,500 pounds = $8,400 Unfavorable as the value is negative.