Question

Joiner Corporation recently purchased 25,000 gallons of direct material at $5.60 per gallon. Usage by the end of the period amounted to 23,000 gallons. If the standard cost is $6.00 per gallon and the company believes in computing variances at the earliest point possible, the direct-material price variance would be calculated as: A) $800F. B) $9,200F. C) $9,200U. D) $10,000F. E)$10,000U.

Answer 1

Answer:

B) 9,200 Favourable

Explanation:

Direct Materials price variance:

Actual Quantity * (Standart Cost - Actual Price ) =  Direct Materials price variance

23,000 * (6 - 5.6) = 23,000 * 0.4 = $9,200  Favourable

The Standar cost as any other costing system is done to valuate the finished goods, the gallons used in production are 23,000 so cost and cost varaince are done using this as actual quantity.

The other 2,000 are still on raw materials inventory for the company. They are not part of Work in progress so they are excluded from the calculation.