Question

Pastel Papers Inc. produces wrapping paper. The standard direct materials quantity is 0.20 pound per unit and the standard rate is $0.30 per pound. During June, the company actually purchased and used 1,800 pounds of direct materials to produce 7,500 units, at an average cost of $0.40 per pound. Calculate the direct materials price variance.

a. $180 favorable
b. $750 favorable
c.$750 unfavorable
d. $180 unfavorable

Answer 1

The direct materials price variance for Pastel Papers Inc. is calculated as ($0.40 - $0.30) x 1,800 pounds, resulting in a $180 unfavorable variance. Therefore correct option is D

Step-by-step explanation:

The direct materials price variance is calculated by comparing the actual price of materials to the standard price. The formula used for this calculation is: (Actual Price - Standard Price) x Actual Quantity.

For Pastel Papers Inc., the actual cost was $0.40 per pound, while the standard rate was $0.30 per pound. The quantity of materials used was 1,800 pounds. Using the formula, we get:

Price Variance = ($0.40 - $0.30) x 1,800 pounds

= $0.10 x 1,800 pounds

= $180.

Since this variance is due to paying a higher price than standard, it is unfavorable.

Therefore, the direct materials price variance for Pastel Papers Inc. is $180 unfavorable.