Question

McCaffee Company has established the following standards: direct materials quantity standard of 1 pound per widget and direct materials price standard of $2 per pound.. In producing 50,000 widgets, 45,000 pounds of materials were used at a cost of $2.10 per pound. What is the materials price variance

Answer 1

$4500 unfavorable

Step-by-step explanation:

Material price variance is the difference between the standard price and actual price at the actual quantity. It could be due to the changes in the prices as expected.

Formula for Material price variance is

Material Price Variance = ( Standard price - Actual price ) x Actual Quantity

Material Price Variance = ( $2 - $2.10 ) x 45,000

Material Price Variance = -$0.10 x 45,000

Material Price Variance = -$4500

As the actual cost is more than the estimated / budgeted cost, the higher cost incurred means higher expenditure which is unfavorable for the company.