Giovanni Company produces a product that requires four standard gallons per unit. The standard price is $34.00 per gallon

Giovanni Company produces a product that requires four standard gallons per unit. The standard price is $34.00 per gallon. If 3,500 units required 14,400 gallons, which were purchased at $33.25 per gallon, what is the direct materials (a) price variance, (b) quantity variance, and (c) cost variance?

Answer:


a. Direct materials price 
variance (favorable) 
–$10,800 [($33.25 – $34.00) × 14,400 gal.] 
b. Direct materials quantity $13,600 [(14,400 gal. – 14,000 gal.) × $34.00] 
 variance (unfavorable)   
c. 

Direct materials cost 
variance (unfavorable) 

$2,800 

(–$10,800 + $13,600) or 
[($33.25 × 14,400 gal.) – ($34.00 × 14,000 gal.)] 
= $478,800 – $476,000