Jameison Incorporated purchased and consumed 50,000 litres 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 litres. If a review of Jameison'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 litre of direct material.

Question

Quizplus · Accepted Answer

The material quantity variance is favorable, indicating less material was used than expected. The standard quantity for 11,000 units is 55,000 litres (11,000 units x 5 litres/unit). The actual quantity used was 50,000 litres, resulting in a favorable variance of 5,000 litres. The material price variance is unfavorable, indicating the actual price was higher than the standard price. The variance of $5,000U suggests the actual price was $0.10 higher per litre than the standard price. Solving for the actual price: Standard price = Actual price - $0.10. Given the price variance and quantity, the actual price is $0.70 per litre.

Jameison Incorporated Purchased and Consumed 50,000 Litres of Direct Material