Oceanside Marine Company: Direct Materials Cost Variance Calculation

Oceanside Marine Company Overview

Oceanside Marine Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. They use standard costs to prepare their flexible budget. In the first quarter of the year, they set certain standards for direct materials and direct labor for one of their popular products.

Direct Materials and Direct Labor Standards

Direct materials: 1 pound per unit; $11 per pound

Direct labor: 2 hours per unit; $18 per hour

Oceanside Marine Company produced 4,000 units during the quarter. At the end of the quarter, an examination of the direct materials records revealed that the company used 7,000 pounds of direct materials, and the actual total materials costs amounted to $102,900.

Direct Materials Cost Variance Calculation

To calculate the direct materials cost variance, we can use the following formula:

Direct material cost variance = Standard cost - Actual cost

Substitute the values to get:

Standard cost = 7,000 pounds x $11 = $77,000

Actual total material cost = $102,900

Therefore, the direct materials cost variance is:

Answer

The direct materials cost variance is $25,900 unfavorable

Explanation

By using the formula mentioned above, we calculated the variance to be $25,900 unfavorable. This indicates that the actual cost of direct materials exceeded the standard cost by $25,900 during the quarter.

What is the direct materials cost variance?

The direct materials cost variance is $25,900 unfavorable