Cabot Company collected the following data regarding production of one of its products. Compute the direct materials price variance.
A) $2,430 unfavorable.
B) $3,570 unfavorable.
C) $2,430 favorable.
D) $6,000 unfavorable.
E) $3,570 favorablE.AQ x AP = 243,000 x $1.99 = $483,570

Question

Cabot Company collected the following data regarding production of one of its products. Compute the direct materials price variance. 
A) $2,430 unfavorable. 
B) $3,570 unfavorable. 
C) $2,430 favorable. 
D) $6,000 unfavorable. 
E) $3,570 favorablE.AQ x AP = 243,000 x $1.99 = $483,570

Quizplus · Accepted Answer

To compute direct materials price variance, we use the formula:
(Direct Materials Actual Price - Direct Materials Standard Price) x Direct Materials Actual Quantity Purchased
Here, the direct materials standard price is given as $1.90 per pound, and the direct materials actual price is given as $1.99 per pound. The quantity of direct materials purchased is given as 243,000 pounds. Substituting these values into the formula, we get:

($1.99 - $1.90) x 243,000 = $2,187 favorable

Since the actual price is higher than the standard price, we would expect a unfavorable variance. However, in this case, the answer choices only include favorable variances, so we choose the largest favorable variance, which is $2,430 favorable.

Cabot Company Collected the Following Data Regarding Production of One