Chilé Products Ltd. Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell 65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of material were purchased out of which 46,000 ounces were used at a cost of $.37 per ounce.
Refer to the Chilé Products Ltd. information above. The direct materials price variance for 2012 was:
A) $1,560 F.
B) $1,560 U.
C) $1,380 F.
D) $1,380 U.

Question

Quizplus · Accepted Answer

The direct materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity Purchased. Here, the actual price is $.37 per ounce, the standard price is $.40 per ounce, and the actual quantity purchased is 52,000 ounces. Thus, the variance is ($.37 - $.40) x 52,000 = -$1,560, indicating a favorable variance since the actual price is less than the standard price.