Scarlett Company has a direct materials standard of 3 gallons of input at a cost of $5 per gallon.During July,Scarlett Company purchased and used 7,500 gallons.The direct materials quantity variance was $750 unfavorable and the direct materials price variance was $3,000 favorable.What price per gallon was paid for the purchases?
A)$5.00
B)$5.40
C)$4.60
D)$2.50

Question

Quizplus · Accepted Answer

The direct materials price variance formula is (Actual Price - Standard Price) x Actual Quantity. Given a favorable variance of $3,000, we can set up the equation as: (AP - $5) x 7,500 = -$3,000 (favorable variance is negative because actual price is less than standard price). Solving for AP gives us AP = $4.60.

Scarlett Company Has a Direct Materials Standard of 3 Gallons