c) Exercise 3: What is the Direct Materials Price Variance? See circle on the printed exercise. A complete answer must have both the dollar variance amount and the F or U designation.

d) Exercise 3: What is the Direct Materials Usage Variance? See circle on the printed exercise. A complete answer must have both the dollar variance amount and the F or U designation.

Price and Usage Variances- DIRECT MATERIALS EXERCISE 3: Flexible budget variances can be further analyzed to determine whether the variance was due to an unexpected fluctuation in price or usage. Use the following data to determine a price and usage variance for Direct Materials: Budget (Std) $2.00 8 gallons $16.00 Actual Price-Direct Materials per gallon Materials Used per unit (barrel) DM Cost per unit (barrel) $1.475 10 gallons $14.75 X X How many gallons per unit did Bettis originally plan for in its budget (standard)? 8 gallons (above) Bettis can multiply this number by the actual units to derive how many gallons it should (expects) to use for the actual quantity produced and sold. It can then compare those numbers to actual results: Actual Planned for Units Produced Actual Production Volume 8,200 8,200 X 8 gallons 65,600 gallons 10 gallons 82,000 gallons Materials Used per Unit (barrel) DM Total Quantity X So, Bettis expected to use a total of 65,600 gallons to produce 8,200 units (barrels). We call this the "Standard Quantity". WARNING: This number is often miscalculated. The definition of "Standard Quantity" is: Standard Quantity = The amount we SHOULD have used for the ACTUAL quantity produced. Use the columnar approach to solve for the price and usage variance and interpret the variances as Favorable (F) or Unfavorable (U) BE SURE TO USE THE DEFINITION ABOoVE WHEN CALCULATING STANDARD QUANTITY IN THE RIGHT MOST COLUMN. Flexible Budget Direct Actual Costs Materials Actual Qty Actual Qty Standard Qty X Actual Price X Standard Price per gallon X Standard Price per gallon per gallon gallons gallons gallons X $ X $ per gallon X $ per per gallon = gallon $ Price Usage Variance Variance Flexible- Budget Variance