The following direct materials data pertain to the operations of Wright Co. for the month of December. Standard materials price $5.00 per pound Actual quantity of materials purchased and used 16,500 pounds The standard cost card shows that a finished product contains 4 pounds of materials. The 16,500 pounds were purchased in December at a discount of 4% from the standard price. In December, 4,000 units of finished product were manufactured. Calculate the materials variances. Identify whether the variance is favorable or unfavorable?

There are various material variances, but main are Material Price Variance and Direct Material Quantity Variance and with the combination of these 2 variances we have Material Usage Variance

Material Price Variance = (Standard Price - Actual Price) X Actual Quantity

Given standard Price = $5 per unit

Actual Price = $5 - 4% = $4.8

Material Price Variance = ($5 - $4.8) X 16,500 = $3,300 Favorable

Material Quantity Variance = (Standard Quantity - Actual Quantity) X Standard Price

Standard Quantity = 4,000 units X 4 pounds per unit = 16,000 pounds

Material Quantity Variance = (16,000 - 16,500) X $5 = - $2,500 Unfavorable

Material Usage Variance = Standard Price X Standard Quantity - Actual Price X Actual Quantity

= ($5 X 16,000) - ($4.8 X 16,500)

= $80,000 - $79,200 = $800 Favorable = Material Price Variance + Material Quantity Variance = $3,300 + (-$2,500) = $800 Favorable

Material Price Variance = $3,300 Favorable

Material Quantity Variance = - $2,500 Unfavorable

Material Usage Variance = $800 Favorable