Courtney purchased and consumed 50,000 gallons 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 gallons. If a review of Courtney'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, what is the actual price paid for a gallon 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 gallons (11,000 units x 5 gallons/unit). The actual quantity used was 50,000 gallons, resulting in a favorable variance of 5,000 gallons. The material price variance is unfavorable by $5,000, meaning the actual price was higher than the standard price. To find the actual price, we need to calculate the standard cost and adjust for the variance. The standard cost for 50,000 gallons is the standard price times 50,000 gallons. The unfavorable variance of $5,000 indicates the actual cost was $5,000 more than the standard cost. Solving for the actual price gives $0.70 per gallon.

Courtney Purchased and Consumed 50,000 Gallons of Direct Material That