Figure 10-9. James Company manufactures t-shirts.During the year,it manufactured 250,000 t-shirts,using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:
It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
Refer to Figure 10-9.What is James' materials price variance assuming that materials purchased equals materials used?
A)$750,000 F
B)$700,000 F
C)$700,000 U
D)$750,00 U

Question

Figure 10-9. James Company manufactures t-shirts.During the year,it manufactured 250,000 t-shirts,using 2 hours of direct labor at a rate of $8.50 per hour.The materials and labor standards for manufacturing the t-shirts are:
 It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
Refer to Figure 10-9.What is James' materials price variance assuming that materials purchased equals materials used?
A)$750,000 F 
B)$700,000 F 
C)$700,000 U 
D)$750,00 U

Quizplus · Accepted Answer

Materials price variance = (Actual price - Standard price) x Actual quantity
Actual quantity = 1,400,000 yards (given)
Actual price = $2.50 per yard (given)
Standard price = $2.75 per yard (given in the materials standard)
Materials price variance = ($2.50 - $2.75) x 1,400,000 yards = $700,000 F (F for unfavorable because the actual price is lower than the standard price)