Precilla Company uses a standard costing system that allows 2 pounds of direct materials for one finished unit.During July,the company purchased 40,000 pounds of direct materials for $210,000 and manufactured 12,000 finished units.The standard direct materials cost allowed for the units manufactured is $120,000.The performance report shows that Pricilla has an unfavorable direct materials usage variance of $5,000.Also,the company records any price variance for materials at time of purchase.
Precilla's standard price per pound of direct materials is:
A)$4.00.
B)$5.00.
C)$6.00.
D)$10.00.
E)$12.00.

Question

Quizplus · Accepted Answer

We can calculate the standard quantity of direct materials using the information given:

Standard quantity = (Finished units x Direct materials per unit)
Standard quantity = (12,000 x 2)
Standard quantity = 24,000 pounds

The standard cost per pound of direct materials is calculated by dividing the standard direct materials cost allowed by the standard quantity:

Standard cost per pound = (Standard direct materials cost allowed / Standard quantity)
Standard cost per pound = ($120,000 / 24,000)
Standard cost per pound = $5.00

Therefore, the standard price per pound of direct materials is $5.00, which is answer choice B.

Precilla Company Uses a Standard Costing System That Allows 2