Question

A company uses 20,000 pounds of materials for which it paid $6.00 a pound. The materials price variance was $15,000 unfavorable. What is the standard price per pound?

1)$0.75
2)$5.25
3)$6.00
4)$6.75

Answer 1

The standard price per pound is $5.25

Step-by-step explanation:

To find the standard price per pound, we can use the formula:

Standard Price Per Pound = Total Actual Cost / Total Quantity Used

Given that the materials price variance was $15,000 unfavorable, we know that the actual cost was $15,000 higher than the standard cost. Since the company used 20,000 pounds of materials and paid $6.00 a pound, the total actual cost would be 20,000 * $6.00 = $120,000. Therefore, the standard cost would be $120,000 - $15,000 = $105,000.

Now, we can calculate the standard price per pound:

Standard Price Per Pound = Total Actual Cost / Total Quantity Used = $105,000 / 20,000 = $5.25