Question

Raven Inc. manufactures 2,000 car tires per month. It had estimated that it would require 10,000 lbs. of rubber per month at the price of $3.50 per lb. to manufacture 2,000 tires. In June, it produced 2,000 tires but it required 11,000 lbs. of rubber and its price was $3.25 per lb. What is the direct material price variance for Raven Inc.

Answer 1

To calculate the direct material price variance, we need to use the following formula:

Direct Material Price Variance = (Actual Price – Standard Price) x Actual Quantity

Here,

Standard Price = $3.50 per lb.

Actual Price = $3.25 per lb.

Actual Quantity = 11,000 lbs.

So, the direct material price variance for Raven Inc. is:

= ($3.25 – $3.50) x 11,000

= -$0.25 x 11,000

= -$2,750

The negative sign indicates an unfavorable variance, which means Raven Inc. paid $2,750 more than the standard price for the rubber used to make 2,000 tires in June.

Step-by-step explanation: