ExpertHard1 markMultiple Choice
CPA · Question 06 · Area I: Business Analysis
During the month of June, a manufacturer purchased 10,000 lbs of raw material at $5.20 per lb. The standard price is $5.00 per lb. The company used 9,500 lbs in production. The standard quantity allowed for the actual production output was 9,200 lbs. What is the Direct Materials Price Variance and the Direct Materials Usage (Efficiency) Variance?
During the month of June, a manufacturer purchased 10,000 lbs of raw material at $5.20 per lb. The standard price is $5.00 per lb. The company used 9,500 lbs in production. The standard quantity allowed for the actual production output was 9,200 lbs. What is the Direct Materials Price Variance and the Direct Materials Usage (Efficiency) Variance?
Answer options:
A.
Price Variance: $2,000 Unfavorable; Usage Variance: $1,500 Unfavorable
B.
Price Variance: $1,900 Unfavorable; Usage Variance: $1,500 Unfavorable
C.
Price Variance: $2,000 Unfavorable; Usage Variance: $1,500 Unfavorable
D.
Price Variance: $2,000 Favorable; Usage Variance: $1,500 Favorable
How to approach this question
Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased. Usage Variance = (Actual Quantity Used - Standard Quantity Allowed) x Standard Price.
Full Answer
C.Price Variance: $2,000 Unfavorable; Usage Variance: $1,500 Unfavorable✓ Correct
Price Variance: ($5.20 - $5.00) * 10,000 lbs = $2,000 Unfavorable (paid more). Usage Variance: (9,500 lbs - 9,200 lbs) * $5.00 = $1,500 Unfavorable (used more).
Common mistakes
Using Quantity Used for the Price Variance calculation; confusing Favorable and Unfavorable directions.
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