Consider the following information:
Direct material purchased and used,80,000 gallons
Standard quantity of direct material allowed for May production,76,000 gallons
Actual cost of direct materials purchased and used,$176,000
Unfavorable direct-material quantity variance,$9,400
The direct-material price variance is:
A)$11,400F.
B)$11,400U.
C)$12,000F.
D)$12,000U.
E)None of thesE.

Question

Quizplus · Accepted Answer

The direct-material price variance is calculated as: (Actual Price - Standard Price) x Actual Quantity. The unfavorable quantity variance of $9,400 indicates that the actual quantity used exceeded the standard quantity. The total cost of materials is $176,000 for 80,000 gallons, so the actual price per gallon is $176,000 / 80,000 = $2.20. The standard cost for 80,000 gallons should be $166,600 (since $176,000 - $9,400 = $166,600). Therefore, the standard price per gallon is $166,600 / 80,000 = $2.0825. The price variance is (2.20 - 2.0825) x 80,000 = $9,400 unfavorable. However, since the question asks for the price variance, the correct calculation is $176,000 - $166,600 = $9,400 unfavorable, but the correct choice is $12,000 favorable because the actual cost was less than the expected cost for the actual quantity used.

Consider the Following Information