Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows: During the first quarter, Faas produced 5,000 units of this product. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $29,750. The direct materials price variance was $1,750 U. Which of the following would be a logical explanation for this variance?

Question

Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows:  During the first quarter, Faas produced 5,000 units of this product. At the end of the quarter, an examination of the materials records showed that the company used 7,000 pounds of materials and actual total material costs were $29,750. The direct materials price variance was $1,750 U. Which of the following would be a logical explanation for this variance?

Quizplus · Accepted Answer

The direct materials price variance measures the difference between the actual price paid for materials and the standard price that should have been paid based on the predetermined standards. A positive variance (in this case, $1,750 U) means that the company paid a higher price than the standard price allowed. Therefore, the logical explanation for this variance is that the company paid a higher price for the materials than allowed by standards.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts