Exeter has a material standard of 1 pound per unit of output. Each pound has a standard price of $26 per pound. During July, Exeter paid $66,100 for 2,475 pounds, which it used to produce 2,350 units. What is the direct materials price variance?
A) $1,750 unfavorable
B) $1,300 favorable
C) $6,300 unfavorable
D) $5,000 unfavorable

Question

Quizplus · Accepted Answer

The standard cost of 2,350 units would be (2,350 units x 1 pound per unit x $26 per pound) = $61,100. However, Exeter paid $66,100, which means they paid $5,000 more than the standard cost. This is the direct materials cost variance.

To calculate the direct materials price variance, we need to isolate the effect of the price difference from the effect of using more or less material than expected.

Direct materials price variance = (actual price - standard price) x actual quantity purchased

In this case, the actual price is ($66,100 / 2,475 pounds) = $26.77 per pound compared to the standard price of $26 per pound.

Direct materials price variance = ($26.77 - $26) x 2,475 = $1,750 unfavorable.

Therefore, the best choice is A) $1,750 unfavorable.

Exeter Has a Material Standard of 1 Pound Per Unit