Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units.The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units.What is the direct materials price variance?

Question

Quizplus · Accepted Answer

Budgeted cost of 4,000 pounds of material = 4,000 x $5.00 = $20,000
Actual cost of 4,500 pounds of material = 4,500 x $5.10 = $22,950
Direct materials price variance = Actual cost - Budgeted cost
= $22,950 - $20,000 = $2,950 unfavorable 
However, the question asks for the direct materials price variance, which only relates to the price difference, not the usage difference. Thus:
Direct materials price variance = Actual quantity x (Actual price - Budgeted price)
= 4,500 x ($5.10 - $5.00) = $450 unfavorable.

Summerlin Company Budgeted 4,000 Pounds of Material Costing $5