Courtney purchased and consumed 50,000 gallons of direct material that was used in the production of 11,000 finished units of product.According to engineering specifications,each finished unit had a manufacturing standard of five gallons.If a review of Courtney's accounting records at the end of the period disclosed a material price variance of $5,000U and a material quantity variance of $3,000F,determine the actual price paid for a gallon of direct material.

Question

Quizplus · Accepted Answer

The standard quantity for 11,000 units is 55,000 gallons (11,000 units x 5 gallons/unit). The quantity variance is favorable, meaning less material was used than the standard. The actual quantity used was 50,000 gallons, which is 5,000 gallons less than the standard, resulting in a $3,000 favorable variance. The price variance of $5,000 unfavorable indicates that the actual price was higher than the standard price. Solving for the actual price using these variances, the actual price per gallon is $0.70.

Courtney Purchased and Consumed 50,000 Gallons of Direct Material That