Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 18

Variable Cost Variances: Materials Purchased and Materials Used Are Not Equal

Golden Company reported the following information concerning its direct materials:

Direct materials purchased (actual)	$174,474
Standard cost of materials purchased	$172,530
Standard price times actual amount of materials used	$115,020
Actual production	14,000	units
Standard direct materials costs per unit produced	$7.86

Required

Compute the direct materials cost variances. Prepare an analysis for management like the one in Exhibit 17.3.

Step 1 of 2

The direct material cost variance is the difference between the standard material cost purchased and actual material cost.

The direct material cost purchased is $174,474 and the standard cost of actual material purchased is $172,530. The difference between the direct material cost and standard cost of actual material purchased is the direct material price variance.