Question

Cost standards for one unit of product no. C 1895: Direct material 3 pounds at $2.70 per pound $ 8.10 Direct labor 7 hours at $7.70 per hour 53.90 Actual results: Units produced 5,600 units Direct material purchased 26,200 pounds at $2.90 $ 75,980 Direct material used 16,500 pounds at $2.90 47,850 Direct labor 40,300 hours at $7.50 302,250 Assume that the company computes variances at the earliest point in time. The direct-material price variance is:

Multiple Choice None of the answers is correct. $5,240U. $5,240F. $3,300U. $3,300F.

Enfield Industries purchased and consumed 56,000 gallons of direct material that was used in the production of 15,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of four gallons. If a review of Enfield's accounting records at the end of the period disclosed a material price variance of $5,600U and a material quantity variance of $2,800F, what is the actual price paid for a gallon of direct material? (Do not round intermediate calculations.)

Multiple Choice

• Not enough information to judge.

• $0.50.

• None of the answers is correct.

• $0.80.

• $0.70.

Answer 1

Ans. 1	Option 1st $5,240 U
	Materials price variance = (Standard price   - Actual price) * Actual quantity
	($2.70 - $2.90) * 26,200
	-$0.20 * 26,200
	-$5,240	or   $5,240   unfavorable
Ans. 2	Option 4th $0.80
	*Calculations for standard quantity of materials allowed :
	*Standard quantity = Actual output * Standard quantity per unit of output
	15,000 units * 4 gallons per unit
	60,000 gallons
	*Calculations for standard price per gallon :
	Materials quantity variance = (Standard quantity - Actual quantity) * Standard price
	$2,800 = (60,000 - 56,000) * Standard price
	$2,800 = 4,000 * Standard price
	$2,800 / 4,000 = Standard price
	Standard price = $0.70 per gallon
	*Calculations for actual price per gallon :
	Materials price variance = (Actual price   - Standard price) * Actual quantity
	$5,600 = (Actual price - $0.70) * 56,000
	$5,600 / 56,000 = Actual price - $0.70
	$0.10 = Actual price - $0.70
	Actual price = $0.70 + $0.10
	Actual price = $0.80 per gallon