If a company budgeted $200,000 for direct materials but actually spent $220,000,

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Question: If a company budgeted $200,000 for direct materials but actually spent $220,000, what is the direct materials variance?

Options:

Correct Answer: $20,000 Unfavorable

Solution:

Direct Materials Variance = Actual Cost - Budgeted Cost = $220,000 - $200,000 = $20,000 (Unfavorable)

If a company budgeted $200,000 for direct materials but actually spent $220,000, what is the direct materials variance?

If a company budgeted $200,000 for direct materials but actually spent $220,000, what is the direct materials variance?

Step 1: Identify the budgeted cost for direct materials. In this case, it is $200,000.
Step 2: Identify the actual cost spent on direct materials. Here, it is $220,000.
Step 3: Calculate the direct materials variance by subtracting the budgeted cost from the actual cost. This means you do $220,000 (actual) - $200,000 (budgeted).
Step 4: The result of the calculation is $20,000.
Step 5: Determine if the variance is favorable or unfavorable. Since the actual cost is higher than the budgeted cost, this is considered an unfavorable variance.

Direct Materials Variance – The difference between the actual cost of direct materials and the budgeted cost, indicating whether the company spent more or less than planned.