Question

Phelps Gold manufactures award medals. In August, Phelps produced 5,000 medals, 100 more than expected. During the month, the company purchased 1, 100 ounces of gold for $875,000. The standard price for the gold is $800 per ounce. The company actually used 1,000 ounces of gold for production. Calculate Phelps's direct materials price variance for the month.

Answer 1

Given:

Metals produced = 5000

Standard price for gold = $800 per ounce

Cost of 1100 ounces of gold = $875000

Gold used for production = 1000 ounces

To find:

Direct material price variance

Solution:

To calculate the direct material price variance we have to use the following formula,

$\text{Direct material price variance = (SP - AP )}\times \text{AQ purchased }$

On plugging-in the values we get,

$\Rightarrow( 800 - [ \frac{875000}{1100} ] )\times1100$

On solving we get,

$\text{Direct material price variance}=\ 5000$

Therefore, Phelps's direct materials price variance for the month is $5000.