Question

Assume the following information for Webster Company: Beginning Raw Materials Inventory (Quantity): 200 items Budgeted Ending Raw Materials Inventory (Quantity): 200 items Budgeted direct materials (Purchased): $7,000 Standard quantity of direct materials per unit: 20 items Budgeted production: 100 units Actual Ending Raw Materials Inventory (Quantity): 175 items Actual direct materials costs (Purchased): $7,500 Actual quantity of direct materials used per unit: 19 items Actual production: 150 units

What is Webster’s direct materials price variance? (do not round intermediate calculations, round final answer to the nearest cent)

Answer 1

Direct materials price variance ($3.18 - $2.65) * 2850 = $1510.50 OR $1510 Favourable

Explanation;

Formula of direct material price variance is as follow;

Direct material price variance = (Standard price – Actual price) * Actual quantity of direct material used

Actual quantity used (19 * 150) = 2850

Actual quantity used (19 * 150)	2850
Add: Actual ending raw materials	175
Less: Actual beginning Raw Materials Inventory	200
Actual quantity purchased	2825 items

Now, let’s calculate actual price per unit = Actual direct materials cost-purchased / Actual quantity purchased

Actual price per unit = $7500 / 2825 = $2.65 per item

Now let’s calculate standard price per item;

Budgeted quantity to be used (20 * 100)	2000
Add: Budgeted Ending Raw Materials Inventory (Quantity)	200
Less: Budgeted Ending Raw Materials Inventory (Quantity)	Nil
Budgeted quantity to be purchased	2200 items

Cost of budgeted quantity purchased is given = $7000

Budgeted quantity purchased = 2200 items

Thus standard price ($7000 / 2200) = $3.18 per item

Now let’s calculate direct materials price variance;

Direct materials price variance ($3.18 - $2.65) * 2850 = $1510.50 OR $1510 Favourable