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Direct Materials Price Variance - Cost Accounting

  1. Delta Industries purchased 8,000 board feet of lumber. The company's standard price for this lumber is $4.50 per board foot. The total materials price variance was $1,200 Favorable. What was the actual cost for the entire purchase of 8,000 board feet?
    Answer: $34,800 First, calculate the total standard cost for the quantity purchased. Total Standard Cost = Standard Price × Actual Quantity Purchased = $4.50 × 8,000 = 36,000.\nNext,usethepricevariancetofindthetotalactualcost.AFavorablevariancemeanstheactualcostwaslessthanthestandardcost.\nPriceVariance=ActualCost−StandardCost\n36,000. \nNext, use the price variance to find the total actual cost. A Favorable variance means the actual cost was less than the standard cost. \nPrice Variance = Actual Cost - Standard Cost \n-1,200 = Actual Cost - $36,000 Actual Cost = $36,000 - $1,200 = $34,800.
  2. Riverside Manufacturing recorded the following journal entry for a materials purchase: Raw Materials Inventory $24,000 (Dr.), Direct Materials Price Variance $1,600 (Dr.), Accounts Payable $25,600 (Cr.). If 4,000 pounds were purchased, what was the standard price per pound?
    Answer: $6.00 per pound, derived from the Raw Materials Inventory amount When you encounter journal entries involving materials purchases with price variances, you're dealing with standard costing systems that record materials at standard cost while separately tracking variances from that standard. The key insight is understanding what each account represents. The Raw Materials Inventory account is always recorded at standard cost in a standard costing system. Since the entry shows Raw Materials Inventory debited for $24,000 and 4,000 pounds were purchased, the standard price per pound is $24,0004,000 pounds=$6.00\frac{\$24,000}{4,000 \text{ pounds}} = \$6.00 per pound. The Direct Materials Price Variance of $1,600 (debit) indicates an unfavorable variance, meaning the actual price exceeded the standard price. The Accounts Payable of $25,600 represents what was actually paid. Answer D is correct because it properly identifies that the standard price comes from dividing the Raw Materials Inventory amount by the quantity purchased. Answer A incorrectly suggests working backward from the actual price, but the calculation described doesn't align with standard costing principles. Answer B mistakes the Accounts Payable (actual cost) for something related to standard price, when Accounts Payable represents the total amount owed to suppliers. Answer C incorrectly suggests averaging actual and standard costs, which has no basis in standard costing methodology. Remember: In standard costing journal entries, the Raw Materials Inventory account always reflects the standard cost. To find the standard price per unit, simply divide the Raw Materials Inventory amount by the quantity purchased.
  3. FlexiCo's policy is to isolate the materials price variance at the time materials are used in production. In June, the company purchased 15,000 pounds of material at $8.20 per pound. The standard price is $8.00 per pound. During June, 12,000 pounds of this material were requisitioned for and used in production. What is the direct materials price variance for June?
    Answer: $2,400 Unfavorable The direct materials price variance is calculated based on the quantity used when the policy is to isolate the variance at the time of usage. The formula is (Actual Price - Standard Price) × Actual Quantity Used. Variance = ($8.20 - $8.00) × 12,000 pounds = $0.20 × 12,000 = $2,400. Since the actual price exceeded the standard price, the variance is Unfavorable.
  4. The standard price for Material Z is $5.00 per pound, which is net of a standard 2% purchase discount for paying within 10 days. During March, the company purchased 8,000 pounds of Material Z on credit with a gross invoice price of $40,800. The company failed to pay within the discount period and paid the full invoice amount. What is the direct materials price variance for March?
    Answer: $800 Unfavorable The actual price paid is the gross invoice price per pound: $40,800 ÷ 8,000 pounds = $5.10 per pound. The standard price is $5.00 per pound (net of discount). The variance calculation is: (Actual Price - Standard Price) × Actual Quantity = ($5.10 - $5.00) × 8,000 pounds = $0.10 × 8,000 = $800 Unfavorable. The company paid more than the standard price due to losing the discount opportunity.
  5. A company's standard price for raw materials was set at $8.00 per unit on January 1. Due to permanent market changes, the standard price was revised to $8.50 per unit on July 1. The company purchased 10,000 units in the first half of the year at an average price of $8.10 and 12,000 units in the second half at an average price of $8.40. What is the total direct materials price variance for the year?
    Answer: $200 Favorable The variance should be calculated for each period using the relevant standard price and then summed. First half (Jan 1 - Jun 30): Standard Price = $8.00, Actual Price = $8.10, Quantity = 10,000 units. Variance = ($8.10 - $8.00) × 10,000 = $0.10 × 10,000 = $1,000 Unfavorable. Second half (Jul 1 - Dec 31): Standard Price = $8.50, Actual Price = $8.40, Quantity = 12,000 units. Variance = ($8.40 - 8.50)×12,000=(8.50) × 12,000 = (-0.10) × 12,000 = $-1,200, which is $1,200 Favorable. Total Variance = $1,000 U + $1,200 F = $200 Favorable.
  6. Jupiter Co. experienced a $4,000 Unfavorable direct materials price variance based on the purchase of 20,000 pounds of material. The actual price paid was $2.20 per pound. What is the standard price per pound?
    Answer: $2.00 The formula for the direct materials price variance is (Actual Price - Standard Price) × Actual Quantity Purchased. We can solve for the Standard Price (SP). An Unfavorable variance is a positive number. $4,000 = ($2.20 - SP) × 20,000 pounds $4,000 / 20,000 = $2.20 - SP $0.20 = $2.20 - SP SP = $2.20 - $0.20 = $2.00.
  7. Apex Manufacturing has established a standard price of $16.00 per gallon for its primary raw material, Solvix. During May, Apex purchased 25,000 gallons of Solvix for $415,000. The company also used 22,000 gallons of Solvix to produce 10,000 units, for which the standard allowance is 2.1 gallons per unit. The company's policy is to compute the direct materials price variance at the time of purchase. What was the direct materials price variance for Solvix in May?
    Answer: $15,000 Unfavorable The direct materials price variance is calculated as (Actual Price - Standard Price) × Actual Quantity Purchased. First, calculate the actual price per gallon: $415,000 / 25,000 gallons = $16.60 per gallon. Next, calculate the price variance: ($16.60 - $16.00) × 25,000 gallons = $0.60 × 25,000 = $15,000. Since the actual price is greater than the standard price, the variance is Unfavorable.
  8. Mitchell Industries uses a standard costing system. During June, the company purchased 15,000 pounds of Material X for $67,500. The standard price is $4.25 per pound. Due to a supplier shortage, only 12,000 pounds were requisitioned for production in June, while the remaining 3,000 pounds were kept in inventory for July production. How should the price variance be recorded in June?
    Answer: $6,750 unfavorable, recorded in full when the 15,000 pounds were purchased in June Price variance is recorded when materials are purchased, not when used. Actual price = $67,500 ÷ 15,000 = $4.50 per pound. Price variance = ($4.50 - $4.25) × 15,000 = $6,750 unfavorable. This entire amount is recorded in June when purchased, regardless of when the materials are actually used in production.
  9. Magellan Corp. uses a standard costing system and computes the materials price variance on purchases. The standard for one finished unit requires 3 meters of material at $8.00 per meter. In August, the company purchased 25,000 meters of material and produced 8,000 finished units. The materials quantity variance was $4,000 Unfavorable. The actual price paid for the material was $7.90 per meter. What was the materials price variance for August?
    Answer: $2,500 Favorable The materials price variance depends on the quantity purchased, not the quantity used or the quantity variance. The information about production volume and the quantity variance is irrelevant to this specific calculation. Price Variance = (Actual Price - Standard Price) × Actual Quantity Purchased = ($7.90 - 8.00)×25,000meters\n=(8.00) × 25,000 meters \n= (-0.10) × 25,000 = $-2,500, which is $2,500 Favorable.
  10. Based on the information provided, what is the total direct materials price variance for Sterling Products for the period?
    Answer: $0 The total direct materials price variance is the sum of the individual price variances for each material. Price Variance = (Actual Price - Standard Price) × Actual Quantity Purchased. For Material Alpha: ($10.50 - $10.00) × 4,000 meters = $0.50 × 4,000 = $2,000 Unfavorable. For Material Beta: ($3.80 - $4.00) × 10,000 kg = $-0.20 × 10,000 = $-2,000, which is $2,000 Favorable. Total Price Variance = $2,000 U + $2,000 F = $0.
  11. During its first month of operations, a company purchased 10,000 liters of raw material for $52,000. The standard price is $5.00 per liter. The company used 7,000 liters to produce 3,500 units of finished goods. The company's policy is to record the materials price variance at the time of purchase. At what amount should the materials inventory be carried on the balance sheet at the end of the month, assuming these are the only materials?
    Answer: $15,000 When a company uses a standard costing system and records the price variance at purchase, the materials inventory is carried at the standard cost. The price variance is recorded in a separate account. First, determine the ending inventory quantity: 10,000 liters purchased - 7,000 liters used = 3,000 liters. Next, value the ending inventory at the standard price: 3,000 liters × $5.00 per liter = $15,000. The actual purchase price and the resulting price variance do not affect the carrying value of the inventory on the balance sheet.
  12. Gala Co. has a standard of 10 feet of wood per product at a standard cost of $3.00 per foot. In the last period, 100,000 feet of wood were purchased for $310,000, and 90,000 feet were used. The direct materials price variance is calculated at the time of purchase. Which of the following is the correct journal entry to record the purchase?
    Answer: Debit Materials $300,000; Debit DM Price Variance $10,000; Credit Accounts Payable $310,000 First, calculate the price variance. Actual Price = $310,000 / 100,000 feet = $3.10 per foot. Standard Price = $3.00 per foot. Variance = ($3.10 - $3.00) × 100,000 feet = $10,000 Unfavorable. The journal entry to record the purchase and the variance is: 1. Debit Materials Inventory at standard cost: 100,000 feet × $3.00/foot = $300,000. 2. Record the variance. An Unfavorable variance is a debit. Debit Direct Materials Price Variance for $10,000. 3. Credit Accounts Payable for the actual cost: $310,000. Therefore, the correct entry is Debit Materials $300,000, Debit DM Price Variance $10,000, and Credit Accounts Payable $310,000.
  13. A company purchased 20,000 gallons of direct material at a price of $10.40 per gallon. The standard price is $10.00 per gallon, which includes an allowance for freight-in of $0.50 per gallon. The actual freight-in cost was $0.60 per gallon, which is included in the $10.40 purchase price. What is the direct materials price variance?
    Answer: $8,000 Unfavorable The standard price and actual price should be compared on a consistent basis, including all costs to acquire the material. The standard price is $10.00 and the actual price is $10.40. Both figures include freight costs. The breakdown of the price into material cost and freight cost is irrelevant information intended to distract. Price Variance = (Actual Price - Standard Price) × Actual Quantity Purchased = ($10.40 - $10.00) × 20,000 gallons = $0.40 × 20,000 = $8,000. Since the actual price is higher than the standard price, the variance is Unfavorable.
  14. Westfield Manufacturing purchased 8,500 pounds of direct materials at $4.20 per pound. The standard cost was $4.00 per pound for 8,000 pounds of materials that should have been used for actual production. If 7,800 pounds were actually used in production, what is the direct materials price variance?
    Answer: $1,700 unfavorable, calculated using actual quantity purchased Direct materials price variance = (Actual Price - Standard Price) × Actual Quantity Purchased. The calculation is ($4.20 - $4.00) × 8,500 = $0.20 × 8,500 = $1,700 unfavorable. Price variance is always calculated using the actual quantity purchased (8,500 lbs), not the quantity used in production or standard quantity allowed.
  15. Precision Tools purchased materials under a quantity discount arrangement: first 5,000 units at $8.00 each, next 3,000 units at $7.50 each. The standard price is $7.80 per unit. What is the total direct materials price variance?
    Answer: $1,000 unfavorable from first tier, $900 favorable from second tier, totaling $100 unfavorable First tier: ($8.00 - $7.80) × 5,000 = $1,000 unfavorable. Second tier: ($7.50 - $7.80) × 3,000 = $900 favorable. Total variance = $1,000 unfavorable + $900 favorable = $100 unfavorable. Each price tier must be calculated separately using its respective actual price and quantity.
  16. The purchasing manager for Visionary Inc. was able to secure a special one-time deal on a batch of 10,000 pounds of raw material, paying $3.85 per pound. The standard price is $4.25 per pound. However, this cheaper material was of lower quality, which the production manager estimates will lead to an unfavorable materials quantity variance of approximately $5,000. What is the direct materials price variance for this purchase?
    Answer: $4,000 Favorable The direct materials price variance calculation is not affected by the materials quantity variance. The information about the quality of the material and the resulting quantity variance is a distractor. The formula is (Actual Price - Standard Price) × Actual Quantity Purchased. Variance = ($3.85 - 4.25)×10,000pounds\n=(4.25) × 10,000 pounds \n= (-0.40) × 10,000 = $-4,000, which is $4,000 Favorable.
  17. Carson Company's purchasing department bought raw materials in two separate transactions during March. Transaction 1: 3,000 units at $12.50 per unit (standard price $12.00). Transaction 2: 2,500 units at $11.80 per unit. What is the total direct materials price variance for March?
    Answer: $1,000 unfavorable total, combining both transactions into a single variance calculation Transaction 1: ($12.50 - $12.00) × 3,000 = $1,500 unfavorable. Transaction 2: ($11.80 - $12.00) × 2,500 = $500 favorable. Total variance = $1,500 unfavorable + $500 favorable = $1,000 unfavorable. Favorable and unfavorable variances do offset each other in the total calculation.
  18. What is the total direct materials price variance that should be recorded on October 15th?
    Answer: $375 unfavorable total, representing the net effect of all three supplier transactions combined Supplier 1: ($15.25 - $15.00) × 2,000 = $500 unfavorable. Supplier 2: ($14.75 - $15.00) × 3,500 = $875 favorable. Supplier 3: ($15.50 - $15.00) × 1,500 = $750 unfavorable. Total variance = $500 unfavorable + $875 favorable + $750 unfavorable = $375 unfavorable. All variances are recorded on the purchase date and favorable variances do offset unfavorable ones.
  19. Meridian Corp uses standard costing and purchases materials monthly. In April, they purchased Material A for $95,000 when the standard cost was $92,000. In May, they purchased the same quantity at $89,000. What is the cumulative direct materials price variance through May?
    Answer: $0 favorable total, since the favorable May variance exactly offsets the unfavorable April variance April variance = $95,000 - $92,000 = $3,000 unfavorable. May variance = $89,000 - $92,000 = $3,000 favorable. Cumulative variance = $3,000 unfavorable + $3,000 favorable = $0. The favorable and unfavorable variances completely offset each other over the two-month period.
  20. A company's standard cost sheet for one unit of product specifies 4 kilograms of material at a standard price of $12.00 per kilogram. During the last quarter, the company purchased 50,000 kilograms of this material and reported an unfavorable materials price variance of $15,000. There was no beginning or ending inventory of this material. What was the actual cost of direct materials used for production during the quarter?
    Answer: $615,000 The question asks for the actual cost of materials used. Since there were no beginning or ending inventories, the quantity purchased equals the quantity used (50,000 kg). First, find the total standard cost of the materials purchased: 50,000 kg × $12.00/kg = $600,000. The price variance is the difference between the actual cost and the standard cost for the quantity purchased. Price Variance = Actual Cost - Standard Cost $15,000 Unfavorable = Actual Cost - $600,000 Actual Cost = $600,000 + $15,000 = $615,000. Since all materials purchased were used, this is also the actual cost of direct materials used.

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