World Class Rings produces class rings. Its best-selling model has a direct materials standard of 16 grams of a special alloy per ring. This special alloy has a standard cost of $ 63.30 per gram. In the past month, the company purchased 16,800 grams of this alloy at a total cost of $ 1,061,760. A total of 16,300 grams were used last month to produce 1,000 rings.

Requirement:

a. What is the actual cost per gram of the special alloy that World Class Rings purchased last month? (Round your answer to the nearest cent.)
b. What is the direct material price variance? (Abbreviations used: DM Direct materials)
c. What is the direct material quantity variance? (Abbreviations used: DM Direct materials)
d. How might the direct material price variance for the company last month be causing the direct material quantity variance?

a. The actual Cost per gram of Special Alloy  is $63.20 per gram

b. The direct material price variance is $1,680 Favourable

c. The Direct Material Quantity Variance is $18,990 unfavourable

d. The direct material quantity variance has caused that the company  had to use more alloy than the standard allows, the company purchased a lower-quality alloy at lower price

Explanation:

In order to calculate the actual cost per gram of the special alloy that World Class Rings purchased last month, we have to use the following equation:

Actual Cost per gram of Special Alloy = $1,061,760 (Total Actual Cost) / 16,800 gram (AQ Purchased)

a. Actual Cost per gram of Special Alloy = $63.20 per gram

To calculate the direct material price variance we have to use the following formula:

(Standard Price - Actual Price) X Actual Quantity Purchased = Direct Material Price Variance  

($63.30 - $63.20) X 16,800 grams = Direct Material Price Variance    

b. Hence, the direct material price variance =$1,680 (F)

To calculate the direct material quantity variance we have to use the following formula:

(Standard Quantity - Actual Quantity) X Standard Price = Direct Material Quantity Variance  

(16,000 grams - 16,300 grams) X $63.30 = Direct Material Quantity Variance  

c. Hence, Direct Material Quantity Variance=$18,990 (U)

d. The direct material quantity variance has caused that the company  had to use more alloy than the standard allows, the company purchased a lower-quality alloy at lower price.

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