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LO $10-1$: Compute the direct materials price and quantity variances and explain their significance.

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We learn how to compute direct materials price and quantity variances. When standards are compared to actual performance, the difference is referred to as a variance. Price variances are computed by taking the difference between actual and standard prices and multiplying the result by the quantity of input purchased. Quantity variances are computed by taking the difference between the actual quantity of the input used and the quantity of input that is allowed for the actual output, and then multiplying the result by the standard price of the input.

An Important Subtlety in the Materials Variances

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Knowledge Check $01$

Most companies compute the materials price variance when raw materials are $\_\_\_\_\_\_\_\_\_$blank.

multiple choice

received from suppliers and transported to raw materials inventory.

withdrawn from raw materials inventory and used in production.

ordered from suppliers.

moved from work in process inventory to finished goods inventory.