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Direct Materials Variances

Silicone Engine Inc. produces wrist-worn tablet computers. The company uses Thin Film Crystal (TFC) LCD displays for its products. Each tablet uses one display. The company produced 580 tablets during December. However, due to LCD defects, the company actually used 600 LCD displays during December. Each display has a standard cost of $15.00. Six hundred LCD displays were purchased for December production at a cost of $8,550.

Determine the price variance, quantity variance, and total direct materials cost variance for December.

Answer :

The price variance is $450 which is Favourable, the quantity variance is $300 unfavourable, and total direct materials cost variance for december is $150 Favourable

Explanation:

Actual price = $8550 divide by 600 = $14.25

Standard price = $15.00

Actual quantity = 600

Standard quantity = 580

[tex]Price Variance $=$ (Standard price - Actual price) $^{*}$ Actual quantity[/tex]

[tex]=(\$ 15.00-14.25) * 600[/tex]

= $450 Favorable

[tex]Quantity variance= (Standard quantity - Actual quantity) * Standard price[/tex]

[tex]=(580-600) * 15[/tex]

= $300 Unfavorable

[tex]Total direct materials cost variance $=$ (Standard quantity $^{*}$ Standard price - Actual quantity Actual price)[/tex]

[tex]=(580 * 15.00-600 * 14.25)[/tex]

= $150 Favorable

 

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