EKPN Co.produces wooden boxes.The company's standards per box require 6 boards, each costing $10 per board, and half of an hour of direct labour.The standard labour rate is $15 per hour.In August, EKPN Co.Purchased 12,000 boards for a total cost of $123,000.It used 11,500 boards to manufacture 1,900 boxes.Total labour hours were 1,000 hours, and total labour costs were $16,250.What was the materials price variance for August?
A)$3,000 F
B)$3,000 U
C)$ 8,000 F
D)$8,000 U

Question

Quizplus · Accepted Answer

To calculate the materials price variance, we need to compare the actual cost of the materials purchased to the standard cost of the materials allowed for the actual output.

Standard cost of materials allowed = Standard quantity × Standard price
                                 = 6 boards per box × $10 per board
                                 = $60 per box

Total standard cost for 1,900 boxes = $60 × 1,900 = $114,000

Actual cost of materials purchased = $123,000

Materials price variance = Actual cost of materials purchased - Standard cost of materials allowed
                                    = $123,000 - $114,000
                                    = $9,000 U
                                    
However, the question asks for the materials price variance for August, which should only take into account the materials purchased and used during that month.

Materials purchased in August = 12,000 boards
Materials used in August = 11,500 boards
Materials unused or held in inventory = 500 boards

Standard cost of materials allowed for 1,900 boxes = $60 × 1,900 = $114,000
Standard cost of materials allowed for 950 boxes (half of 1,900 boxes) = $57,000

Standard price per board = Standard cost of materials allowed ÷ Standard quantity of materials allowed
                                    = $57,000 ÷ (950 boxes × 6 boards per box)
                                    = $10 per board

Standard cost of materials allowed for 12,000 boards purchased in August = 12,000 boards × $10 per board
                                                                                                                                              = $120,000

Materials price variance for August = Actual cost of materials purchased in August - Standard cost of materials allowed for 12,000 boards purchased in August
                                                          = $123,000 - $120,000
                                                          = $3,000 U

Therefore, the best choice is B, $3,000 U, as this represents the materials price variance for August only.

EKPN CoProduces Wooden Boxes