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Actual usage is 8,400 pounds against a standard of 8,600 pounds, with a standard price of $6.00 and an actual price of $6.30. What is the direct materials quantity variance?
A$1,200 favourable
B$1,200 unfavourable
C$2,520 favourable
D$2,520 unfavourable
Answer & Solution
Correct answer: A. $1,200 favourable
1. The quantity variance is actual quantity minus standard quantity, multiplied by the standard price.
2. Actual quantity minus standard quantity is 8,400 minus 8,600, which is negative 200 pounds.
3. Negative 200 pounds times $6.00 gives negative $1,200.
4. A negative result means less was used than planned, so the variance is favourable.
5. The quantity variance always uses the standard price, so the actual price of $6.30 plays no part here.
6. $2,520 is the price variance, which is the other half of the split and runs the opposite way.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.2 Direct Materials Cost Variance_
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