Question

Lee Company's standards for the most recent period are given below. Fixed and variable manufacturing overhead costs are applied to products on the basis of machine hours. The denominator volume of machine hours is 9,000.

	Standard Quantity or Hours per unit	Standard Price or Rate per unit	Standard Cost per unit
Direct Materials	3 feet	$6 per foot	$18
Direct Labor	1.5 direct labor hours	$10 per direct labor hour	$15
Variable Overhead	2 machine hours	$12 per machine hour	$24
Fixed Overhead	2 machine hours	$15 per machine hour	$30

Actual costs for the most recent period, during which 5,000 units of output were actually produced and used 9,600 machine hours, are given below:

Direct Materials	The firm purchased 16,000 feet at $6.30 per foot, but only used 14,500 feet in production.
Direct Labor	The firm used 7,150 direct labor hours and paid $11 per direct labor hour.
Variable Overhead	Actual variable overhead costs were $122,880.
Fixed Overhead	Actual fixed overhead costs were $142,000.

What was the company’s material price variance?

	A.	$4,350 unfavorable
	B.	$4,800 unfavorable
	C.	$4,800 favorable
	D.	$4,350 favorable

Answer 1

Ans;$4350 unfavorable

Material Price Variance

The materials price variance is the difference between the actual and budgeted cost to acquire materials, multiplied by the total number of actual units purchased. The formula is:

(Actual price - Standard price) x Actual quantity used = Material price variance

Given

Standard price==$6 per foot

Actual price=$6.30 per foot

Actual Quantity =AQ means the “actual quantity” of input used to produce the output. =14500 feet

Material price variance=(Actual price - Standard price) x Actual quantity used

                                          =($6.30-$6.00)*14500

                                                =$4350 Unfavorable

Reason for unfavorable variance;Since the variance is positive and it means actual cost exceeded the budgeted (standard cost)($6.3>$6.0) and hence it is unfavorable to the organisation