CHAPTER 1 MODULE 1
Chapter
10 Module 2
AMIS 212
Introductory Managerial Accounting
Professor Marc Smith
Chapter 10 Module 2: DM Variances
2 Direct Material Variances:
(1) Direct material price variance
(2) Direct material quantity variance
●
A positive variance is referred to as an
unfavorable variance
●
A negative variance is referred to as a
favorable variance
Chapter 10 Module 2: DM Price Variance
DM Price Variance = (AQ x AP) - (AQ x SP)
A  stands for actual
Q  stands for quantity
P  stands for price
S  stands for standard
NOTE:
The AQ in the DM price variance
represents the actual quantity of
direct materials purchased.
Chapter 10 Module 2: DM Quantity Variance
DM Quantity Variance = (AQ x SP) - (SQ x SP)
NOTE: The AQ in the DM quantity variance
represents the actual quantity of
direct materials used in production.
The standard quantity (SQ) is calculated:
(standard quantity of DM per unit x
number of units produced)
Chapter 10 Module 2: DM Variances
DM Price Variance = (AQ x AP) - (AQ x SP)
●
●
where AQ = AQ purchased
measures the difference between what was actually paid
to purchase direct materials and what should have been
paid, according to the standards
DM Quantity Variance = (AQ x SP) - (SQ x SP)
●
●
where AQ = AQ used in production
measures the difference between how much in direct
materials was actually used in production and how much
should have been used, according to the standards
Chapter 10 Module 2: Example #1
DM Price Variance = (AQ x AP) - (AQ x SP)
(130,000 x 0.11) - (130,000 x 0.10)
14,300 - 13,000 = $1,300 unfavorable
●
Betty DeRose spent $1,300 more to purchase
direct materials than she should have, given
the standards
Chapter 10 Module 2: Example #1
DM Quantity Variance = (AQ x SP) - (SQ x SP)
(125,000 x 0.10) - [(67,500 x 2) x 0.10]
12,500 - 13,500 = $1,000 favorable
●
Betty DeRose used $1,000 less in direct
materials than she should have, given
the standards
Chapter 10 Module 2: Review Question
Hanson, Inc. has the following direct material
standards to manufacture one units of its product,
called a zippy:
1.5 pounds per zippy at $4 per pound
Last week 2,800 pounds of direct materials were
purchased at a cost of $3.90 per pound and 1,700
pounds were used to make 1,000 zippies. What was
the direct material price variance?
a. $170 U
b. $170 F
c. $280 U
d. $280 F
(2,800 x $3.90) - (2,800 x $4.00) = $280 F
Chapter 10 Module 2: Review Question
Hanson, Inc. has the following direct material
standards to manufacture one units of its product,
called a zippy:
1.5 pounds per zippy at $4 per pound
Last week 2,800 pounds of direct materials were
purchased at a cost of $3.90 per pound and 1,700
pounds were used to make 1,000 zippies. What was
the direct material quantity variance?
a. $800 U
b. $800 F (1,700 x $4.00)
c. $5,200 U
d. $5,200 F
- [(1,000 x 1.5) x $4.00] = $800 U