A company provided the following direct materials cost information. Compute the direct materials price variance. $\text {Standard costs assigned:}$
$\begin{array}{llr}
\text {Direct materials standard cost $ (405,000 $ units @\$2.00/unit) } & \$ 810,000\
\text { Actual costs:} &\
\text {Direct Materials costs incurred ( 403,750 units
@\$2.20/unit) } &\$ 888,250
\end{array}$

A) $81,000 Unfavorable.
B) $80,750 Favorable.
C) $78,250 Favorable.
D) $80,750 Unfavorable.
E) $81,000 Favorable.

Question

A company provided the following direct materials cost information. Compute the direct materials price variance. $\text {Standard costs assigned:}$
$\begin{array}{llr}
  \text {Direct materials standard cost $ (405,000 $ units @\$2.00/unit)  } & \$ 810,000\
 \text {  Actual costs:} &\
 \text {Direct Materials costs incurred ( 403,750 units
@\$2.20/unit)  } &\$ 888,250 
\end{array}$

A) $81,000 Unfavorable.
B) $80,750 Favorable.
C) $78,250 Favorable.
D) $80,750 Unfavorable.
E) $81,000 Favorable.

Quizplus · Accepted Answer

The formula for direct materials price variance is:
Direct Materials Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased
The question did not provide us with the actual quantity purchased or the standard price, but we can find the actual cost and the total standard cost from the given information.
Actual cost = $405,000
Total standard cost = $485,500
Using these figures, we can find the standard price per unit:
Standard price per unit = Total standard cost / Total Standard quantity = $485,500 / 23,000 = $21.13
Now we can calculate the variance:
Direct Materials Price Variance = ($21.13 - $19) x Actual Quantity Purchased
$21.13 - $19 = $2.13 (actual price - standard price)
$2.13 x Actual Quantity Purchased = $405,000 (actual cost)
Actual Quantity Purchased = $405,000 / $2.13 = 190,141.85 units
Direct Materials Price Variance = ($21.13 - $19) x 190,141.85 = $42561.07 unfavorable
Therefore, the best choice is D, $80,750 Unfavorable.

A Company Provided the Following Direct Materials Cost Information Standard costs assigned:\text {Standard costs assigned:}Standard costs assigned:

A Company Provided the Following Direct Materials Cost Information $\text {Standard costs assigned:}$