Question

Consider the following data for a manufacturing company. Compute the price variance for materials. Standard inputs allowed for actual output x standard prices Costs incurred Actual Inputs x standard prices Direct Direct Materials Labor $ 59,000 $ 95,000 $ 58,000 $100,000 $ 61,000 $ 98,000 $1,000 favorable b. $2,000 unfavorable $3,000 unfavorable $2,000 favorable e. $1,000 unfavorable f. $3,000 favorable

Answer 1

Material Price Variance: Material Price Variance is the variance between the Actual price and Standard price for the Actual units used for production.

Material Price Variance = (Actual Price - Standard Price) * Actual Units used for production or

= [ (Actual Price * Actual Units Produced) - Standard Price* Actual Units used for production)]

Favorable Material PriceVariance : When the Actual price of the Actual units are less than the Standard Price of the Actual units, then the variance is said to be Favorable

Unfavorable Material PriceVariance : When the Actual price of the Actual units are more than the Standard Price of the Actual units, then the variance is said to be Unfavouable

In the Question it is given

Costs incurred for materials i.e Actual inputs * Actual price = $58,000

Actual Inputs * Standard Prices = $61,000

Price Variance Material = Actual price for Actual Units - Standard price for Actal Units

= $58,000 - $61,000

Price Variance Material = - $3,000

Here the Actual price for Actual units is less than the Standard price for Actual units i.e the costs incurred is less by $3,000. So there is a Favorable Material Price Variance of $3000.

Hence Option f. $3,000 favorable is correct