Luma Incorporated has provided the following data concerning one of the products in its standard cost system. The company has reported the following actual results for the product for September:
The raw materials price variance for the month is closest to:
A) $9,081 Unfavorable
B) $9,450 Favorable
C) $9,450 Unfavorable
D) $9,081 Favorable

Question

Luma Incorporated has provided the following data concerning one of the products in its standard cost system.  The company has reported the following actual results for the product for September:
 The raw materials price variance for the month is closest to:
A) $9,081 Unfavorable 
B) $9,450 Favorable 
C) $9,450 Unfavorable 
D) $9,081 Favorable

Quizplus · Accepted Answer

To calculate the raw materials price variance, we need to compare the actual price paid per unit of material with the standard price per unit of material.

Actual price per unit = $50,000 ÷ 10,000 = $5.00 
Standard price per unit = $4.50

Therefore, the raw materials price variance is: 
($5.00 - $4.50) x 10,000 units = $5,000 Favorable

Since the question is asking for the variance in dollars, we need to express the answer as an absolute value (ignoring whether it is favorable or unfavorable). Therefore, the raw materials price variance for the month is $5,000.

However, the answer choices are all in the form of a signed number (either positive or negative). To convert our answer to this format, we need to determine whether the variance is favorable or unfavorable based on the actual cost of materials purchased.

Actual cost of materials purchased = $52,500 
Expected cost of materials based on standard = $45,000

Therefore, the actual cost is higher than expected, indicating an unfavorable variance.

The absolute value of the unfavorable variance is $5,000, so the answer is: 
C) $9,450 Unfavorable

Luma Incorporated Has Provided the Following Data Concerning One of the Products