Pardee, Inc. completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: Efficiency variance $4,500 Unfavourable
Standard price $10 per unit
Actual units purchased 9,000
Inventory decrease 1,000 units
Budget variance $900 Favourable
The standard quantity of direct materials allowed for the month was:
A)10,450
B)9,000
C)10,000
D)9,550

Question

Quizplus · Accepted Answer

To find the standard quantity of direct materials allowed for the month, we need to use the formula:

Standard quantity = Actual price x (Actual quantity - Inventory decrease) + Efficiency variance - Budget variance

Substituting the given values:

Standard quantity = $10 x (9,000 - 1,000) + $4,500 - $900
Standard quantity = $80,100

Dividing by the standard price per unit:

Standard quantity = $80,100 ÷ $10
Standard quantity = 8,010 units

However, since the inventory decreased by 1,000 units, we need to add that back:

Standard quantity = 8,010 + 1,000
Standard quantity = 9,010 units

Therefore, the standard quantity of direct materials allowed for the month is 9,010 units, which is closest to option D (9,550).