Direct Material Price Variance Calculation

What is the direct material price variance?

In February, 760 pounds of direct material were used to produce 2480 units. The standard price per pound is 21 pounds. What is the direct material price variance?

Direct Material Price Variance

The direct material price variance is 13288.80 pounds.

Direct material price variance is a crucial indicator of how efficiently a company is utilizing its direct materials. It shows the difference between the actual cost incurred on direct material and the standard cost that should have been incurred based on the standard price per pound.

In this case, the standard price per pound is 21 pounds, and 760 pounds of direct material were used to produce 2480 units. To calculate the direct material price variance, we need to compare the standard price with the actual price and multiply it by the actual quantity used.

Standard Price = 21 pounds Actual Quantity Used = 760 pounds Actual Cost Incurred = 2480 units

The formula to calculate direct material price variance is: Direct Material Price Variance = (Standard Price – Actual Price) * Actual Quantity

Since we know the standard price and actual quantity used, we need to find the actual price before calculating the direct material price variance. By using the total actual cost incurred and the actual quantity used, we can determine the actual price per pound.

Actual Price = Total Actual Cost Incurred / Actual Quantity Used Actual Price = 2480 / 760 Actual Price = 3.26 pounds per pound

Now, we can calculate the direct material price variance as follows: Direct Material Price Variance = (Standard Price – Actual Price) * Actual Quantity Direct Material Price Variance = (21 – 3.26) * 760 Direct Material Price Variance = 13288.80 pounds

Therefore, the direct material price variance in this scenario is 13288.80 pounds. It indicates that the company incurred a higher cost than expected based on the standard price per pound for the direct materials used.