Arrow Industries uses a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product. During May, Arrow purchased 160,000 pounds of direct material at a total cost of $304,000. The total direct labor wages for May were $37,800. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor-hours.
-The direct materials price variance for May is:
A)$16,000 favorable
B)$16,000 unfavorable
C)$14,250 favorable
D)$14,250 unfavorable

Question

Arrow Industries uses a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.  During May, Arrow purchased 160,000 pounds of direct material at a total cost of $304,000. The total direct labor wages for May were $37,800. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor-hours.
-The direct materials price variance for May is:
A)$16,000 favorable 
B)$16,000 unfavorable 
C)$14,250 favorable 
D)$14,250 unfavorable

Quizplus · Accepted Answer

Materials price variance = (AQ F1F1F1S1F1F1F10 AP)- (AQ F1F1F1S1F1F1F10 SP)
= $304,000 - (160,000 pounds F1F1F1S1F1F1F10 $1.80 per pound)
= $304,000 - $288,000 = $16,000 U

Arrow Industries Uses a Standard Cost System in Which Direct