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Unformatted text preview: Direct Materials Variances: did we pay the right amount and did we use the right amount o DM Price Variances: did we pay too much (unfavorable) or little (favorable)? IN THE EQUATION PRICE VARIES, GET IT ? Actual Quantity Purchased Actual Quantity Purchased X Actual Price Paid per unit X Standard Price per unit If the left side is larger, we have an unfavorable variance which means we paid too much!! If the right side is lager, we have a favorable variance which means we paid less than we anticipated! o DM Quantity Variances: did we use more (unfavorable) or did we use less (favorable)? IN THE EQUATION, QUANTITY VARIES, GET IT ? Actual Quantity Used Standard Quantity** X Standard Price X Standard Price **Standard Quantity is the AMOUNT THAT WE SHOULD HAVE USED AT THAT PRODUCTION LEVEL SO IT REQUIRES A MULTIPLICATION! For example, if our standard quantity is 2 lbs. per unit and we produced 1000 units, then the standard quantity would be 2000. If the left side is larger, we have an unfavorable variance which means that we used more materials than we should have!! If the right side is larger, we have a favorable variance which means that at that production level...
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This note was uploaded on 07/02/2011 for the course ACCT 226 taught by Professor Smith during the Spring '10 term at South Carolina.
- Spring '10
- Financial Accounting