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.
The direct materials purchase-price variance in July is:
A)$10,000 unfavorable.
B)$50,000 unfavorable.
C)$80,000 unfavorable.
D)$86,000 unfavorable.
E)$90,000 unfavorable.

Question

Quizplus · Accepted Answer

The standard cost for the purchased materials is $3 per pound ($120,000 / (2 pounds/unit * 12,000 units)). The actual cost per pound is $210,000 / 40,000 pounds = $5.25. The purchase-price variance is (Actual price - Standard price) * Quantity purchased = ($5.25 - $3) * 40,000 = $90,000 unfavorable.

Precilla Company Uses a Standard Costing System That Allows 2