Given the following information, calculate the materials price variance:Direct material purchased and used 30,000 kgCost of direct material $84,000Unfavourable direct materials usage variance $3,000Standard quantity of direct materials allowed for May production 29,000kg
Question
Given the following information, calculate the materials price variance:Direct material purchased and used 30,000 kgCost of direct material 3,000Standard quantity of direct materials allowed for May production 29,000kg
Solution
To calculate the materials price variance, we need to follow these steps:
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Calculate the standard price per unit: This is done by dividing the total cost of direct material by the standard quantity of direct materials allowed for production.
Standard price per unit = Total cost of direct material / Standard quantity of direct materials allowed for production Standard price per unit = 2.90 per kg
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Calculate the actual price per unit: This is done by dividing the total cost of direct material by the actual quantity of direct material used.
Actual price per unit = Total cost of direct material / Actual quantity of direct material used Actual price per unit = 2.80 per kg
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Calculate the materials price variance: This is done by subtracting the actual price per unit from the standard price per unit, and then multiplying the result by the actual quantity of direct material used.
Materials price variance = (Standard price per unit - Actual price per unit) x Actual quantity of direct material used Materials price variance = (2.80 per kg) x 30,000 kg = $3,000
So, the materials price variance is $3,000. This is a favorable variance because the actual price per unit is less than the standard price per unit.
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