In Command Ltd completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: $$\begin{array} { l l }
\text { Efficiency variance } & \$ 9,000 \text { Unfavourable } \
\text { Stardard price } & \$ 10 \text { per urit } \
\text { Actual units purchased } & 18,000 \
\text { Inventory decrease } & 1,000 \text { units } \
\text { Budget variance } & \$ 1,800 \text { Favourable }
\end{array}$$ The standard cost of the direct materials used was:
A) $90,000
B) $191,000
C) $180,000
D) $94,000

Question

In Command Ltd completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: $$\begin{array} { l l } 
\text { Efficiency variance } & \$ 9,000 \text { Unfavourable } \
\text { Stardard price } & \$ 10 \text { per urit } \
\text { Actual units purchased } & 18,000 \
\text { Inventory decrease } & 1,000 \text { units } \
\text { Budget variance } & \$ 1,800 \text { Favourable }
\end{array}$$ The standard cost of the direct materials used was:
A) $90,000
B) $191,000
C) $180,000
D) $94,000

Quizplus · Accepted Answer

The standard cost of direct materials used can be calculated by first determining the actual quantity of materials used and then multiplying it by the standard price per unit. The actual quantity used is the actual units purchased minus the inventory decrease, which is 18,000 units - 1,000 units = 17,000 units. Multiplying this by the standard price of $10 per unit gives $170,000. However, to find the standard cost, we also need to consider the budget variance, which is favorable at $1,800. This means the standard cost was actually less than what was spent. Therefore, the standard cost of the direct materials used is $170,000 + $10,000 (to adjust for the unfavorable efficiency variance) = $180,000.

In Command Ltd Completed Operations for the Week and the Accountant