Question

Tercer reports the following for one of its products. Compute the total direct materials cost variance and classify it as favorable or unfavorable.

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

Short answer

The total direct material cost variance is unfavorable.

Step-by-step solution

Meaning of Cost Variance

The managers use the cost variance analysis to determine the difference between actual and standard costs. If the actual cost is less than the standard cost, the variance is considered favorable and vice versa.

Computation of total direct materials cost variance

$$\begin{gathered} \mathbf{\text{Standardcostofmaterial=Costperunit×Numberofunitsproduced}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{\times }\mathbf{60}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{480}\mathbf{,}\mathbf{000} \end{gathered}$$

role="math" localid="1653741741439" $$\begin{gathered} \mathbf{\text{Actualcostofmaterialused=\$535,000}} \\ \mathbf{\text{Directmaterialcostvariance=Standardcostofmaterial×Actualcostofmaterial}} \\ \mathbf{\text{=\$480,000-\$535,000}} \\ \mathbf{\text{=\$(55,000)}} \end{gathered}$$

Comment:

The direct material cost variance is unfavorable because the actual cost is higher than the standard cost.