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A direct materials quantity variance of $1,200 favourable sits alongside a price variance of $2,520 unfavourable. What is the total direct materials cost variance?
A$1,320 favourable
B$3,720 unfavourable
C$1,320 unfavourable
D$3,720 favourable
Answer & Solution
Correct answer: C. $1,320 unfavourable
1. The total cost variance is the quantity variance plus the price variance.
2. The favourable $1,200 is negative and the unfavourable $2,520 is positive, so they partly cancel.
3. Negative $1,200 plus $2,520 gives $1,320.
4. The larger unfavourable price element wins, so the net figure is $1,320 unfavourable.
5. Adding the two without regard to sign gives $3,720, which double counts an offset that has already happened.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.2 Direct Materials Cost Variance_
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