Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows:

Materials:(7 kilograms × $10 per kilogram)$70 Labor:(7 hours × $17 per hour)$119

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

In-process beginning inventory none In-process ending inventory—90% complete as to labor 1,100unitsUnits completed during the month 7,300unitsBudgeted output 8,100unitsPurchases of materials, in kilograms (AQ) 34,000 Total actual labor costs incurred$531,000 Direct labor hours worked (AQ) 34,000hoursMaterials purchase-price variance$2,300unfavorableIncrease in materials inventory in July 1,600kilogramsBeginning inventory of materials 0kg.

The direct materials usage variance for July, to the nearest dollar, was:

$264,000 favorable

1. Direct materials usage variance = (AQ ? SQ) × SP

2. SQ = total output with respect to materials × standard kilograms/unit produced = [7,300 units completed (given) + 1,100 equivalent units in ending work-in-process inventory (note assumption that all materials are added at the beginning of processing; thus, the units in ending-WIP inventory are 100% complete with respect to materials content] × 7 kilograms/unit = 58,800 kilograms

3. AQ = Purchases ? increase in ending inventory of materials = 34,000 (given) ? 1,600 (given) = 32,400 kg.

4. Therefore, direct materials usage variance = (32,400 ? 58,800) kilograms × $10/kg. (given) = $264,000F (to nearest dollar). Note: The variance here is favorable (F) because the actual quantity of materials used during the period (AQ) < standard quantity of materials allowed for the output of the period (SQ).