Question

A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,500 pounds of direct materials were purchased for $5,700. The direct materials price variance for last month was:

Answer 1

Answer:

Direct Material Price Variance = $300 Favorable

Explanation:

Direct Material Price Variance = (Standard Price - Actual Price) $\times$ Actual Quantity

Standard Price = $4 per pound

Actual Price = $\frac{Actual\ Cost}{Actual\ Units}$ = $\frac{5,700}{1,500} = 3.8$

Since the actual price is less than the standard price the variance will be favorable as the amount paid for actual use is less then the estimated standard cost.

Thus, direct material price variance = ($4 - $3.8) $\times$ 1,500

= $300 Favorable