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24 January, 09:48

cost variance Tercer reports the following for one of its products. Direct materials standard (4 lbs. @ $2 per lb.) $ 8 per finished unit Actual finished units produced 60,000 units Actual cost of direct materials used $ 535,000 Compute the total direct materials cost variance and classify it as favorable or unfavorable.

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  1. 24 January, 13:41
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    Total direct materials cost variance is $66,000 and it is favorable.

    Explanation:

    Actual cost = Actual Quantity * Actual Price

    = 300,000 * $1.78

    = $534,000

    Actual cost with selling price = Actual Quantity * Selling Price

    = 300,000 * $2.00

    = $600,000

    The total direct materials cost variance is computed as:

    Total direct materials cost variance = Actual cost with selling price - Actual Cost

    = $600,000 - $534,000

    = $66,000

    It is favorable.

    Working Note:

    Actual Price per lbs = $534,000 / 300,000

    = $1.78
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