Question

Parallel Enterprises has collected the following data on one of its products.During the period the company produced 25,000 units. Direct materials standard (7 kg. @ $1.60/kg.) $11.20 per finished unitActual cost of materials purchased $249,000Actual direct materials purchased and used 142,000 kg.The direct materials price variance is: a. $31,000 unfavorable.b. $52,800 unfavorable.c. $52,800 favorable.d. $21,800 unfavorable.e. $21,800 favorable

Answer 1

Answer:

Option D: $21,800 Unfavorable

Explanation:

Direct Material Price Variance = Actual Cost of Direct Materials Purchased – Actual Quantity of Direct Materials Purchased at Standard Price

If,

Actual Cost of Direct Materials Purchased > Actual Quantity of Direct Materials Purchased at Standard Price = Unfavorable Variance  

Actual Cost of Direct Materials Purchased < Actual Quantity of Direct Materials Purchased at Standard Price = Favorable Variance

Working

Direct Material Price Variance = $249,000 – (142,000 Kg × $1.6 per Kg)

Direct Material Price Variance = $249,000 – $227,000

Direct Material Price Variance = $21,800

As per decision rule stated above, Parallel Enterprises has an Unfavorable Direct Material Price Variance of $21,800