During December, 6,000 pounds of raw materials were purchased at a cost of £16 per pound. If there was an unfavorable materials price variance of £6,000 for December, the standard cost per pound must be
A) £17
B) £16
C) £15
D) none of the above

Question

Quizplus · Accepted Answer

The unfavorable price variance of £6,000 means that the actual cost of materials exceeded the standard cost.

The formula for calculating materials price variance is:

Materials Price Variance = (Actual Price - Standard Price) x Actual Quantity

If we rearrange this formula to solve for the Standard Price, we get:

Standard Price = Actual Price - (Materials Price Variance / Actual Quantity)

Substituting the given values:

Actual Price = £16
Materials Price Variance = £6,000 (unfavorable)
Actual Quantity = 6,000 pounds

Standard Price = £16 - (£6,000 / 6,000 pounds)
Standard Price = £15 per pound

Therefore, the standard cost per pound must be £15. Option C is the correct answer.

During December, 6,000 Pounds of Raw Materials Were Purchased at a Cost