ExpertMedium2 marksMultiple Choice
ACCA · Question 25 · E. Standard costing
A bespoke furniture maker has a standard material cost of 5 kg of oak per table at a standard price of $20 per kg.
During the month, the company purchased and used 600 kg of oak to produce 110 tables. The actual total cost of the oak purchased was $12,600.
What is the direct material price variance?
A bespoke furniture maker has a standard material cost of 5 kg of oak per table at a standard price of $20 per kg.
During the month, the company purchased and used 600 kg of oak to produce 110 tables. The actual total cost of the oak purchased was $12,600.
What is the direct material price variance?
Answer options:
A.
$600 Favorable
B.
$600 Adverse
C.
$1,000 Adverse
D.
$1,600 Adverse
How to approach this question
Compare the actual cost of materials purchased with what they *should* have cost (Actual Quantity * Standard Price).
Full Answer
B.$600 Adverse✓ Correct
Material Price Variance = (Standard Price * Actual Quantity) - Actual Cost.
Standard cost for 600 kg = 600 kg * $20/kg = $12,000.
Actual cost = $12,600.
Since actual cost is higher than standard, the variance is $600 Adverse.
Common mistakes
Calculating the usage variance or total variance instead of just the price variance, or getting the direction (Fav/Adv) wrong.
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