Oceanside Marine Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Oceanside uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:
Direct materials: 2 pound per unit; $12 per pound
Direct labor: 2 hours per unit; $16 per hour
Oceanside produced 3000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 6500 pounds of direct materials and actual total materials costs were $99,600.
What is the direct materials cost variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $9960 Unfavorable
B) $9960 Favorable
C) $21,580 Unfavorable
D) $21,580 Favorable
C) $21,580 Unfavorable
Explanation: Direct materials cost variance = (Actual cost - Standard cost) × actual quantity
Actual direct materials cost per unit = $99,600 / 6500 pounds = $15.32 per pound
Direct materials cost variance = ($15.32 - $12) × 6500 units = $21,580 Unfavorable
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