Question
Download Solution PDFProduct A requires 10 kg of material at the rate of Rs. 5 per kg. The actual consumption of material for the manufacturing of product A comes to 12 kg of material at the rate of Rs. 6 per kg. Direct material cost variance is
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFDirect Material Cost Variance:
- It is the difference between the standard cost of specified for the output achieved, and the actual cost of direct materials consumed.
- The standard cost of materials is computed by multiplying the standard price with the standard quantity for actual output.
- The actual cost is computed by multiplying the actual price with the actual quantity used.
The Direct Material Variance may be calculated with help of the following formula:
Direct Material Cost Variance = Standard Cost for actual output - Actual Cost
Where Standard Cost = Standard Price per unit X Standard Quantity used for actual output
Actual Cost = Actual Price X Actual Quantity used.
Direct material cost variance arises due to a change in the price of materials or change in the quantity of material used or both. If the standard cost is more than the actual cost, the variance will be favorable and on the other hand, if the actual cost is more than the standard cost the variance will be unfavorable or adverse.
Direct Material Cost Variance = (SP x SQ) - (AP x AQ)
= (5 x 10) - (6 x 12)
= 50 - 72
= Rs. 22 Unfavorable/Adverse
Therefore, if Product A requires 10 kg of material at the rate of Rs. 5 per kg. The actual consumption of material for the manufacturing of product A comes to 12 kg of material at the rate of Rs. 6 per kg. Direct material cost variance is Rs. 22 Unfavorable/Adverse.
Last updated on Jun 12, 2025
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