Min Company has developed the following standards for one of its products. The following activity occurred during the month of November:
$\begin{array}{ll}
\text { Direct materials: } & 15 \mathrm{~kg} \times \$ 17.50 \text { per kilogram } \
\text { Direct labour: } & 4 \text { hours } \times \$ 24 \text { per hour } \
\text { Variable manufacturing overhead: } & 4 \text { hours } \times \$ 14 \text { per hour }
\end{array}$ The company records materials price variances at the time of purchase.What is the direct materials price variance?
$\begin{array}{ll}
\text { Materials purchased: } & 20,000 \mathrm{~kg} \text { costing } \$ 340,000 \
\text { Materials used: } & 7,200 \mathrm{~kg} \
\text { Units produced: } & 500 \text { units } \
\text { Direct labour: } & 2,300 \text { hours at } \$ 23.60 \text { per hour }
\end{array}$
A)$10,000 favourable
B)$10,000 unfavourable
C)$50,000 favourable
D)$50,000 unfavourable

Question

Quizplus · Accepted Answer

The direct materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity. Here, the actual price is $340,000 / 20,000 kg = $17 per kg, and the standard price is $17.50 per kg. The variance is ($17 - $17.50) x 20,000 kg = $10,000 favourable.

Min Company Has Developed the Following Standards for One of Its