Question

A company purchases 12,000 pounds of materials. The materials price variance is $6,000 favorable. What is the difference between the standard and actual price paid for the materials?

Answer 1

The difference between the standard and actual price paid for the materials is $0.5.

Step-by-step explanation:

Given Data:

Actual Quantity = 12,000 Pounds

Material Price Variance = $6,000

We know the formula for Material Price Variance is:

Materials Price Variance = (Actual quantity × Actual price) – (Actual quantity × Standard price) ----- (1)

For convenience, suppose:

Actual Price = AP & Standard Price = SP

Rearranging the equation (1) and substituting the Actual and standard price with AP and SP we get,

Material Price Variance = (Actual Quantity x AP) – (Actual Quantity x SP)

Taking Actual Quantity as common on the left hand side of equation we get:

Material Price Variance= Actual Quantity (AP – SP) ---- (2)

Putting the values of Material Variance and Actual Quantity in equation (2), we get:

$6000=12,000 (AP – SP)

Rearranging the equation we get,

AP – SP = $6000/12,000

Finally, AP – SP = $0.5

Conclusion:

The difference between the standard and actual price paid for the materials is $0.5.