Consider the following information for Dave Company for the month of May: Direct materials (DM) purchased and used 86,000 gallons Total quantity of DM budgeted to be used in May production 81,400 gallons Actual cost of DM purchased and used in May $230,200 Unfavorable DM quantity variance $12,880 What is the DM price variance in May

Direct material price variance = $ 10,600  favourable

Explanation:

The Direct material quantity variance($) = Direct material qty variance × standard price

Standard price  = Direct material quantity variance ($)/Direct material quantity variance in units

Direct material quantity variance in units= 86,000 - 81,400 = 4,600

Standard price  = $12,880/4,600 units = $2.8

Direct material price variance occurs when the actual quantity of materials are purchased at an actual price per unit higher or lower than the standard price.

Direct material price variance                                                    $

86,000 gallons should have cost (86,000× $2.8) =           240,800

But did cost                                                                            230,200

Direct material price variance                                               10,600  favourable

Direct material price variance = $ 10,600  favourable                                    

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