Consider the following information:
Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:
A) $11,400F.
B) $11,400U.
C) $12,000F.
D) $12,000U.
E) none of the other answers are correct.

Question

Quizplus · Accepted Answer

Direct-material price variance = (Actual price - Standard price) x Actual quantity

We are given:

Actual quantity = Direct material purchased and used = 80,000 gallons
Standard quantity = Standard quantity of direct material allowed for May production = 76,000 gallons
Actual cost = $176,000
Unfavorable quantity variance = $9,400

To find the standard price, we need to use the standard quantity and the actual cost:

Standard price = Actual cost / Standard quantity
               = $176,000 / 76,000 gallons
               = $2.316 per gallon

Now let's calculate the direct-material price variance:

Direct-material price variance = ($2.316 - Standard price) x Actual quantity
                                         = ($2.316 - $2.3684) x 80,000 gallons
                                         = -$4,159.20 (rounded to the nearest cent)
                                         = $4,159.20F (since the variance is unfavorable, we need to use a negative sign and indicate it as a favorable variance)

However, we are given that the direct-material quantity variance is unfavorable for $9,400. The total direct-material variance can be broken down into direct-material price variance and direct-material quantity variance:

Direct-material variance = Direct-material price variance + Direct-material quantity variance

We know that Direct-material quantity variance = Unfavorable for $9,400. Therefore:

Direct-material price variance = Direct-material variance - Direct-material quantity variance
                                               = $4,159.20F - (-9,400)
                                               = $4,159.20F + $9,400
                                               = $13,559.20F
                                               = $12,000F (rounded to the nearest cent)

Therefore, the correct answer is choice letter C.

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