Question

The following standards have been established for a raw material used to make product O84: Standard quantity of the material per unit of output 7.7 meters Standard price of the material $ 18.50 per meter The following data pertain to a recent month's operations: Actual material purchased 4,000 meters Actual cost of material purchased $ 77,600 Actual material used in production 3,700 meters Actual output 560 units of product O84 The direct materials purchases variance is computed when the materials are purchased. Required: a. What is the materials price variance for the month

Answer 1

$3,330 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.

Actual cost per unit = Total cost / Material Purchases = $77,600 / 4,000 meter =

Formula for Material price variance is

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

Material Price Variance = ( $18.5 - $19.4 ) x 3,700

Material Price Variance = --$0.9 x 3,700

Material Price Variance = --$3,330 = $3,330 unfavorable

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