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Variance Calculations

The following direct materials variance computations are incomplete:
Price variance = ($? - $7) x 10,800 pounds = $5,400 U
Efficiency variance = (? - 10,400 pounds) x &7 = ?U
Flexible budget variance = $?

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Direct Material Price Variance

First of all, to answer this question you will need to know the formula used to calculate the direct material price variance:

DM price variance = AQ ( AP - SP)
AQ = Actual quantity
AP = Actual price
SP = standard price

It's important to note that the actual quantity can refer to the quantity purchased, which is most useful for the direct material price variance, or the quantity used, which is most useful when calculating efficiency variances.

We are told that the price variance is (? - 7) x 10,800 = 5,400 unfavorable

Since the price variance is unfavorable, we know that the actual price paid per unit of material was more than the standard price per unit of that material. Therefore, we know that the ? is a number greater than 7. We can now use algebra to solve for the unknown. The steps are ...

Solution Summary

This questions shows step-by-step calculations of the direct material price variance, direct material efficiency variance, and the flexbiel budget variance.