AMIS 212 Introductory Managerial Accounting

Professor Marc Smith

CHAPTER 1 MODULE 1Chapter 10 Module 2Chapter 10 Module 2

2 Direct Material Variances:

(1) Direct material price variance

(2) Direct material quantity variance

● A positive variance is referred to as anunfavorable variance

● A negative variance is referred to as afavorable variance

Chapter 10 Module 2: DM Variances

DM Price Variance = (AQ x AP) - (AQ x SP)

A stands for actualQ stands for quantityP stands for priceS stands for standard

NOTE: The AQ in the DM price variancerepresents the actual quantity ofdirect materials purchased.

Chapter 10 Module 2: DM Price Variance

DM Quantity Variance = (AQ x SP) - (SQ x SP)

NOTE: The AQ in the DM quantity variance represents the actual quantity of direct materials used in production.

The standard quantity (SQ) is calculated: (standard quantity of DM per unit x

number of units produced)

Chapter 10 Module 2: DM Quantity Variance

DM Price Variance = (AQ x AP) - (AQ x SP)

● where AQ = AQ purchased● measures the difference between what was actually paid

to purchase direct materials and what should have beenpaid, according to the standards

DM Quantity Variance = (AQ x SP) - (SQ x SP)

● where AQ = AQ used in production● measures the difference between how much in direct materials was actually used in production and how much

should have been used, according to the standards

Chapter 10 Module 2: DM Variances

DM Price Variance = (AQ x AP) - (AQ x SP)

(130,000 x 0.11) - (130,000 x 0.10)

14,300 - 13,000 = $1,300 unfavorable

● Betty DeRose spent $1,300 more to purchasedirect materials than she should have, giventhe standards

Chapter 10 Module 2: Example #1

DM Quantity Variance = (AQ x SP) - (SQ x SP)

(125,000 x 0.10) - [(67,500 x 2) x 0.10]

12,500 - 13,500 = $1,000 favorable

● Betty DeRose used $1,000 less in directmaterials than she should have, giventhe standards

Chapter 10 Module 2: Example #1

Hanson, Inc. has the following direct material standards to manufacture one units of its product, called a zippy:

1.5 pounds per zippy at $4 per pound

Last week 2,800 pounds of direct materials were purchased at a cost of $3.90 per pound and 1,700 pounds were used to make 1,000 zippies. What was the direct material price variance?

a. $170 U

b. $170 F

c. $280 U

d. $280 F

Hanson, Inc. has the following direct material standards to manufacture one units of its product, called a zippy:

1.5 pounds per zippy at $4 per pound

Last week 2,800 pounds of direct materials were purchased at a cost of $3.90 per pound and 1,700 pounds were used to make 1,000 zippies. What was the direct material price variance?

a. $170 U

b. $170 F

c. $280 U

d. $280 F

Chapter 10 Module 2: Review Question

(2,800 x $3.90) - (2,800 x $4.00) = $280 F

Hanson, Inc. has the following direct material standards to manufacture one units of its product, called a zippy:

1.5 pounds per zippy at $4 per pound

Last week 2,800 pounds of direct materials were purchased at a cost of $3.90 per pound and 1,700 pounds were used to make 1,000 zippies. What was the direct material quantity variance?

a. $800 U

b. $800 F

c. $5,200 U

d. $5,200 F

Hanson, Inc. has the following direct material standards to manufacture one units of its product, called a zippy:

1.5 pounds per zippy at $4 per pound

Last week 2,800 pounds of direct materials were purchased at a cost of $3.90 per pound and 1,700 pounds were used to make 1,000 zippies. What was the direct material quantity variance?

a. $800 U

b. $800 F

c. $5,200 U

d. $5,200 F

Chapter 10 Module 2: Review Question

(1,700 x $4.00) - [(1,000 x 1.5) x $4.00] = $800 U