Question

Saturn Industries purchased and consumed 64,000 gallons of direct material that was used in the production of 17,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of four gallons. If a review of Saturn's accounting records at the end of the period disclosed a material price variance of $6,400U and a material quantity variance of $2,800F, what is the actual price paid for a gallon of direct material

Answer 1

The actual price = $1.08

Step-by-step explanation:

The standard material price can be worked out as follows:

Step 1: Work out the standard price of material using the material usage variance

Standard price = Material usage variance/(standard quantity of material - actual quantity)

Standard quantity of material = standard qty per unit × actual production

= 4 × 17,000 =68,000

Standard price = 2,800/(68,000-64,000)= $0.7

Step 2 : Work out the Actual material price using the material price variance

Material price variance = (Standard price - Actual price )× Actual quantity of material

6,400 = (y - 0.7) × 17,000

6400 = 17,000y - 11,900

17,000 y = 6,400 + 11,900

y = 18,300/17,000= 1.08

The actual price = $1.08