The following information is provided by the Atlas Company: What is the direct material price variance?
$$\begin{array} { | l | l | }
\hline \text { Actual direct material cost } & \$ 20,000 \
\hline \text { Standard direct material cost } & \$ 24,000 \
\hline \text { Direct material usage variance } & \$ 3,000 \text { favorable }\\hline
\end{array}$$
A)$1,000 favorable
B)$1,000 unfavorable
C)$5,000 unfavorable
D)Not enough information is provided

Question

The following information is provided by the Atlas Company: What is the direct material price variance?
$$\begin{array} { | l | l | } 
\hline \text { Actual direct material cost } & \$ 20,000 \
\hline \text { Standard direct material cost } & \$ 24,000 \
\hline \text { Direct material usage variance } & \$ 3,000 \text { favorable }\\hline
\end{array}$$
A)$1,000 favorable
B)$1,000 unfavorable
C)$5,000 unfavorable
D)Not enough information is provided

Quizplus · Accepted Answer

The direct material price variance is the difference between the actual direct material cost and the standard direct material cost. In this case, the actual direct material cost is $20,000 and the standard direct material cost is $24,000. Therefore, the direct material price variance is $20,000 - $24,000 = $4,000 unfavorable. However, the direct material usage variance is $3,000 favorable. This means that the company used less direct material than expected, which offset some of the unfavorable price variance. Therefore, the net direct material variance is $4,000 - $3,000 = $1,000 unfavorable.

The Following Information Is Provided by the Atlas Company: What