Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilos per unit @ $1.50 per kilo
Direct labor = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labor incurred = 2,000 hours at a cost of $13,000
The material price variance for materials purchased was
A) $1,650 F
B) $870 U
C) $2,520 U
D) $780 F

Question

Quizplus · Accepted Answer

The material price variance is calculated as the difference between the actual price paid for materials and the standard price. In this case, the actual price paid was $5,850 / 5,000 kg = $1.17 per kg, while the standard price was $1.50 per kg. The variance is therefore $1.17 - $1.50 = -$0.33 per kg. Since the actual price was lower than the standard price, the variance is favorable and is denoted by F. The total favorable variance is -$0.33 * 5,000 kg = $1,650.

Welch Company Budgeted the Following Cost Standards for the Current