Reference: 21_01
Five Rings, Inc, has collected the following data on one of its products:
$\begin{array}{ll}
\text { Direct materials standard (4 lbs. @ \$1/lb.) } & \$ 4 \text { per finished unit } \
\text { Total direct materials cost variance-unfavorable } & \$ 13,750 \
\text { Actual direct materials used } & 150,000 \mathrm{lbs} . \
\text { Actual finished units produced } & 30,000 \text { units }
\end{array}$
-The direct materials price variance is:
A) $13,750 unfavorable
B) $16,250 unfavorable
C) $16,250 favorable
D) $30,000 unfavorable
E) $33,000 favorable

Question

Reference: 21_01
Five Rings, Inc, has collected the following data on one of its products:
 $\begin{array}{ll}
\text { Direct materials standard (4 lbs. @ \$1/lb.) } & \$ 4 \text { per finished unit } \
\text { Total direct materials cost variance-unfavorable } & \$ 13,750 \
\text { Actual direct materials used } & 150,000 \mathrm{lbs} . \
\text { Actual finished units produced } & 30,000 \text { units }
\end{array}$ 
-The direct materials price variance is:
A) $13,750 unfavorable
B) $16,250 unfavorable
C) $16,250 favorable
D) $30,000 unfavorable
E) $33,000 favorable

Quizplus · Accepted Answer

The direct materials price variance is calculated as the difference between the actual price paid for the materials and the standard price. In this case, the actual price paid is not given, so we cannot calculate the price variance directly. However, we can use the total direct materials cost variance and the actual quantity of materials used to calculate the price variance.The total direct materials cost variance is unfavorable, which means that the actual cost of the materials was higher than the standard cost. The actual quantity of materials used is 150,000 lbs. The standard quantity of materials allowed for the actual output is 30,000 units * 4 lbs. per unit = 120,000 lbs. The difference between the actual quantity and the standard quantity is 150,000 lbs. - 120,000 lbs. = 30,000 lbs.The price variance is calculated as the difference between the actual price paid and the standard price, multiplied by the actual quantity of materials used. We do not know the actual price paid, but we can use the total direct materials cost variance and the actual quantity of materials used to calculate the price variance.The total direct materials cost variance is $13,750 unfavorable. The actual quantity of materials used is 150,000 lbs. The price variance is calculated as:Price variance = (Actual price - Standard price) * Actual quantityPrice variance = (Actual price - $1) * 150,000 lbs.Price variance = Actual price * 150,000 lbs. - $150,000We do not know the actual price, but we can solve for it by rearranging the equation:Actual price = (Price variance + $150,000) / 150,000 lbs.Actual price = ($13,750 + $150,000) / 150,000 lbs.Actual price = $163,750 / 150,000 lbs.Actual price = $1.0917 per lb.The price variance is calculated as:Price variance = (Actual price - Standard price) * Actual quantityPrice variance = ($1.0917 - $1) * 150,000 lbs.Price variance = $0.0917 * 150,000 lbs.Price variance = $16,250 unfavorableTherefore, the direct materials price variance is $16,250 unfavorable.

Reference: 21_01 Five Rings, Inc, Has Collected the Following Data

Reference: 21_01
Five Rings, Inc, Has Collected the Following Data