Question

The following data relate to direct materials costs for November: Actual costs 2,500 kilograms at $8.00 Standard costs 2,600 kilograms at $8.75 The amount of direct materials price variance is: a) $1,875 unfavorable b) $1,950 unfavorable c) -$1,950 favorable d) -$1,875 favorable

Answer 1

Answer is D

Calculation

Actual quantity = 2,500 Kilograms

Actual price per kilogram = $8.00

Standard Quantity = 2,600 Kilograms

Standard price per kilogram = $8.75

Direct material price variance = Actual cost – standard cost

                                                          = (Actual quantity x Actual price) – (Actual quantity x Standard price)

                                                          =(2,500 Kg’s x $8) – (2,500 Kg’s x $8.75)

                                                          =$20,000 - $21,875

                                                          =-$1,875 Favorable

Note: Actual price per Kilogram ($8) which is lower than the standard price per Kilogram ($8.75)

results in lower actual cost of materials. That is why the resultant variance is a favorable

variance.