Question

oiner Corporation recently purchased 34,000 gallons of direct material at $5.60 per gallon. Usage by the end of the period amounted to 32,000 gallons. If the standard cost is $6.10 per gallon and the company believes in computing variances at the earliest point possible, the direct-material price variance would be calculated as:

Answer 1

Answer:

$17,000 favourable

Explanation:

Price variance is the difference between the actual cost incurred to purchase the material and the actual quantity cost on a standard or budgeted rate of the material.As per given data

Actual Quantity = 34,000 gallon

Actual Price = $5.60

Standard cost = $6.1

Total Actual cost = 34,000 x $5.60 = $190,400

Standard cost of Actual purchase = $6.1 x 34,000 = $207,400

Direct-material price variance = Cost at standard rate - Actual Cost = $207,400 - $190,400 = $17,000

The variance is favorable as Oiner Corporation incurred less cost on a quantity purchase than the standard cost of the same quantity.