Sunday, September 22, 2019

Techno Tyme Inc. produces electronic timepieces. The company uses mini-LCD displays for its products.

Techno Tyme Inc. produces electronic timepieces. The company uses mini-LCD displays for its products. Each timepiece uses one display. The company produced 430 timepieces during October. However, due to LCD defects, the company actually used 450 LCD displays during October. Each display has a standard cost of $6.90.  Four hundred fifty LCD displays were purchased for October production at a cost of $2,925.Determine the price variance, quantity variance, and total direct materials cost variance for October.

Answer:





























Price variance: 
Direct Materials 
Price Variance 
Direct Materials 
Price Variance 
Direct Materials 
Price Variance 
=   (Actual Price – Standard Price) × Actual Quantity 
=   ($6.50 per unit* – $6.90 per unit) × 450 
=   –$180 Favorable 
* $2,925 ÷ 450 units = $6.50 per unit 
Quantity variance: 
Direct Materials 
Quantity Variance 
Direct Materials 
Quantity Variance 
Direct Materials 
=   (Actual Quantity – Standard Quantity) × Standard Price 
=   (450 units – 430 units) × $6.90 per unit 


Quantity Variance    =
   $138 Unfavorable 
Total direct materials cost variance: 
Direct Materials 
Cost Variance   = 
Direct Materials Price Variance + 
Direct Materials Quantity Variance 
Direct Materials 
Cost Variance 
Direct Materials 
Cost Variance 

=   –$180 + $138 
=   –$42 Favorable 

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