Turrubiates Corporation makes a product that uses a material with the following standards: The company budgeted for production of 2,300 units in April, but actual production was 2,400 units. The company used 16,410 liters of direct material to produce this output. The company purchased 18,600 liters of the direct material at $1.10 per liter.The direct materials purchases variance is computed when the materials are purchased.The materials price variance for April is:
A) $1,860 Unfavorable
B) $1,860 Favorable
C) $1,560 Unfavorable
D) $1,560 Favorable

Question

Turrubiates Corporation makes a product that uses a material with the following standards:  The company budgeted for production of 2,300 units in April, but actual production was 2,400 units. The company used 16,410 liters of direct material to produce this output. The company purchased 18,600 liters of the direct material at $1.10 per liter.The direct materials purchases variance is computed when the materials are purchased.The materials price variance for April is:
A) $1,860 Unfavorable 
B) $1,860 Favorable 
C) $1,560 Unfavorable 
D) $1,560 Favorable

Quizplus · Accepted Answer

Direct Materials Price Variance = (Actual Quantity Purchased × Actual Price) - (Actual Quantity Purchased × Standard Price)

Actual Quantity Purchased = 18,600 liters
Actual Price = $1.10 per liter
Standard Price = Standard cost per unit ÷ Standard quantity per unit
              = 11eb6b8f_6347_8952_bf83_69faabdf305a_TB8314_00 ÷ 2,300 liters
              = $6.00 ÷ 2,300
              = $0.0026 per liter

Standard Quantity for 2,400 units = 2,400 × 11eb6b8f_6347_8952_bf83_69faabdf305a_TB8314_00
                                         = 9,600 liters
Actual Quantity Used = 16,410 liters

Direct Materials Price Variance = (18,600 × $1.10) - (18,600 × $0.0026 × 16,410)
                                               = $20,460 - $711.16
                                               = $19,748.84

Since the actual price paid for the material was higher than the standard price, the variance is unfavorable. Therefore, the correct answer is A) $1,860 Unfavorable.

Turrubiates Corporation Makes a Product That Uses a Material with the Following