During May, 6,000 pounds of raw materials were purchased at a cost of £2.60 per pound. If there was a favourable materials price variance of £900 for December, the standard cost per pound must be
A)£2.75.
B)£2.60.
C)£2.45.
D)none of the above.

Question

Quizplus · Accepted Answer

A favourable materials price variance indicates that the actual cost was less than the standard cost. The actual cost was £2.60 per pound for 6,000 pounds, totalling £15,600. The favourable variance was £900, meaning the standard cost for the materials was higher than the actual cost by £900. To find the standard cost per pound, add the variance (£900) to the total actual cost (£15,600) to get the total standard cost (£16,500), and then divide by the quantity (6,000 pounds). This calculation gives a standard cost per pound of £2.75.

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