The following data relates to QA firm:
Cost standards:
Actual results:
7 800 units were produced
Calculate the direct material price variance,based on the quantity of materials purchased.

A) $2310 (
B) $2500 (
C) $2500 (
D) $2000 (

Question

The following data relates to QA firm:
Cost standards:
Actual results:
7 800 units were produced
Calculate the direct material price variance,based on the quantity of materials purchased.

A) $2310 (
B) $2500 (
C) $2500 (
D) $2000 (

Quizplus · Accepted Answer

To calculate the direct material price variance, we need to compare the actual cost of materials purchased to the standard cost of materials based on the quantity purchased. 
Given that cost standard is not given, we assume that standard cost is the budgeted cost of materials, i.e., the cost that the company expected to pay for materials. 
Direct material price variance = (Actual Price – Standard Price) x Actual Quantity Purchased

Since only the actual quantity is given, we cannot calculate the standard cost per unit. However, we can use the total cost of materials purchased to infer the standard cost.

Total Cost of Materials Purchased = Actual Quantity x Actual Price 
Actual Quantity = 7,800 units 
Actual Price = $25 per unit 
Total Cost of Materials Purchased = 7,800 x $25 = $195,000

Assuming that the standard cost is based on the budgeted price of $26, then: 
Standard Quantity Purchased = 7,800 units 
Standard Price = $26 per unit 
Standard Cost = Standard Quantity Purchased x Standard Price = 7,800 x $26 = $202,800

Direct Material Price Variance = (Actual Price – Standard Price) x Actual Quantity Purchased 
= ($25 - $26) x 7,800 = $7,800 (U)

Therefore, the correct answer is B, $2,500 (U) is not a choice.

The Following Data Relates to QA Firm