Cost Accounting Quiz: Direct Materials Price Variance
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Direct Materials Price VarianceQuestion 1 of 20

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?

$15,600
$15,000
$14,400
$17,000
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Cost Accounting Quiz

Cost Accounting Quiz: Direct Materials Price Variance

Practice Direct Materials Price Variance in Cost Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Direct Materials Price Variance, giving you a quick way to practice the rules, question types, and explanations that matter most for Cost Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

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?

  1. $15,600
  2. $15,000 (correct answer)
  3. $14,400
  4. $17,000
Explanation: 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. \nFirst, determine the ending inventory quantity: 10,000 liters purchased - 7,000 liters used = 3,000 liters. \nNext, value the ending inventory at the standard price: 3,000 liters × $5.00 per liter = $15,000. \nThe actual purchase price and the resulting price variance do not affect the carrying value of the inventory on the balance sheet.

Question 2

Sterling Products uses a standard costing system. For its main product, two raw materials, Alpha and Beta, are required. Standard and actual data for the most recent period are as follows:

Material Alpha:

  • Standard Price: $10.00 per meter
  • Actual Price: $10.50 per meter
  • Actual Quantity Purchased: 4,000 meters

Material Beta:

  • Standard Price: $4.00 per kg
  • Actual Price: $3.80 per kg
  • Actual Quantity Purchased: 10,000 kg

Based on the information provided, what is the total direct materials price variance for Sterling Products for the period?

  1. $0 (correct answer)
  2. $2,000 Unfavorable
  3. $4,000 Favorable
  4. $2,000 Favorable
Explanation: The total direct materials price variance is the sum of the individual price variances for each material. \nPrice Variance = (Actual Price - Standard Price) × Actual Quantity Purchased. \nFor Material Alpha: ($10.50 - $10.00) × 4,000 meters = $0.50 × 4,000 = 2,000Unfavorable.\nForMaterialBeta:(2,000 Unfavorable. \nFor Material Beta: (3.80 - $4.00) × 10,000 kg = $-0.20 × 10,000 = $-2,000, which is $2,000 Favorable. \nTotal Price Variance = $2,000 U + $2,000 F = $0.

Question 3

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?

  1. $1,000 Favorable
  2. $5,000 Unfavorable
  3. $4,000 Favorable (correct answer)
  4. $1,000 Unfavorable
Explanation: 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. \nThe formula is (Actual Price - Standard Price) × Actual Quantity Purchased. \nVariance = ($3.85 - 4.25)×10,000pounds\n=(4.25) × 10,000 pounds \n= (-0.40) × 10,000 = $-4,000, which is $4,000 Favorable.

Question 4

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?

  1. $1,000 unfavorable from first tier, $900 favorable from second tier, totaling $100 unfavorable (correct answer)
  2. $900 favorable, calculated using the weighted average actual price of $7.69 per unit
  3. $1,000 unfavorable, since the unfavorable variance from the first tier cannot be offset
  4. $240 unfavorable, calculated using the higher tier price applied to total quantity purchased
Explanation: First tier: ($8.00 - $7.80) × 5,000 = 1,000unfavorable.Secondtier:(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.

Question 5

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?

  1. $816 Favorable
  2. $800 Unfavorable (correct answer)
  3. $1,616 Unfavorable
  4. $816 Unfavorable
Explanation: The actual price paid is the gross invoice price per pound: $40,800 ÷ 8,000 pounds = $5.10 per pound. The standard price is 5.00perpound(netofdiscount).Thevariancecalculationis:(ActualPrice−StandardPrice)×ActualQuantity=(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.

Question 6

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?

  1. $2,000 Unfavorable
  2. $8,000 Unfavorable (correct answer)
  3. $10,000 Unfavorable
  4. $8,000 Favorable
Explanation: 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.Bothfiguresincludefreightcosts.Thebreakdownofthepriceintomaterialcostandfreightcostisirrelevantinformationintendedtodistract.\nPriceVariance=(ActualPrice−StandardPrice)×ActualQuantityPurchased\n=(10.40. Both figures include freight costs. The breakdown of the price into material cost and freight cost is irrelevant information intended to distract. \nPrice Variance = (Actual Price - Standard Price) × Actual Quantity Purchased \n= (10.40 - $10.00) × 20,000 gallons \n= $0.40 × 20,000 = $8,000. \nSince the actual price is higher than the standard price, the variance is Unfavorable.

Question 7

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?

  1. $2,400 Favorable
  2. $2,500 Unfavorable
  3. $2,500 Favorable (correct answer)
  4. $2,400 Unfavorable
Explanation: 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. \nPrice Variance = (Actual Price - Standard Price) × Actual Quantity Purchased \n= ($7.90 - 8.00)×25,000meters\n=(8.00) × 25,000 meters \n= (-0.10) × 25,000 = $-2,500, which is $2,500 Favorable.

Question 8

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?

  1. $2,400 Favorable
  2. $3,000 Unfavorable
  3. $3,000 Favorable
  4. $2,400 Unfavorable (correct answer)
Explanation: 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. \nThe formula is (Actual Price - Standard Price) × Actual Quantity Used. \nVariance = ($8.20 - $8.00) × 12,000 pounds = $0.20 × 12,000 = $2,400. \nSince the actual price exceeded the standard price, the variance is Unfavorable.

Question 9

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?

  1. $200 Unfavorable
  2. $1,000 Favorable
  3. $2,200 Unfavorable
  4. $200 Favorable (correct answer)
Explanation: The variance should be calculated for each period using the relevant standard price and then summed. \nFirst half (Jan 1 - Jun 30): \nStandard Price = $8.00, Actual Price = 8.10,Quantity=10,000units.\nVariance=(8.10, Quantity = 10,000 units. \nVariance = (8.10 - $8.00) × 10,000 = $0.10 × 10,000 = $1,000 Unfavorable. \nSecond half (Jul 1 - Dec 31): \nStandard Price = $8.50, Actual Price = 8.40,Quantity=12,000units.\nVariance=(8.40, Quantity = 12,000 units. \nVariance = (8.40 - 8.50)×12,000=(8.50) × 12,000 = (-0.10) × 12,000 = $-1,200, which is $1,200 Favorable. \nTotal Variance = $1,000 U + $1,200 F = $200 Favorable.

Question 10

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?

  1. Debit Materials $310,000; Credit Accounts Payable $310,000
  2. Debit Materials $300,000; Debit DM Price Variance $10,000; Credit Accounts Payable $310,000 (correct answer)
  3. Debit Materials $310,000; Credit DM Price Variance $10,000; Credit Accounts Payable $300,000
  4. Debit Work-in-Process $300,000; Debit DM Price Variance $10,000; Credit Accounts Payable $310,000
Explanation: First, calculate the price variance. \nActual Price = $310,000 / 100,000 feet = $3.10 per foot. \nStandard Price = 3.00perfoot.\nVariance=(3.00 per foot. \nVariance = (3.10 - $3.00) × 100,000 feet = $10,000 Unfavorable. \nThe 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. \nTherefore, the correct entry is Debit Materials $300,000, Debit DM Price Variance $10,000, and Credit Accounts Payable $310,000.

Question 11

Quantum Enterprises purchased 5,000 liters of a chemical from a foreign supplier for €70,000. The standard price was set at $15.00 per liter, based on a budgeted exchange rate of $1.10 per euro. The actual exchange rate at the date of purchase was $1.15 per euro. What is the direct materials price variance for this purchase?

  1. $2,500 Unfavorable
  2. $3,500 Favorable
  3. $5,500 Unfavorable (correct answer)
  4. $3,500 Unfavorable
Explanation: This variance is caused by both a difference in the foreign currency price and the exchange rate. We need to compare the total actual cost in dollars to the total standard cost in dollars. \nActual Cost: €70,000 × $1.15/€ = $80,500. \nStandard Cost: 5,000 liters × $15.00/liter = $75,000. \nTotal Price Variance = Actual Cost - Standard Cost = $80,500 - $75,000 = $5,500 Unfavorable. \nAlternatively, one can calculate the actual and standard prices in dollars. \nActual Price = $80,500 / 5,000 liters = $16.10 per liter. \nStandard Price = 15.00perliter.\nVariance=(15.00 per liter. \nVariance = (16.10 - $15.00) × 5,000 liters = $1.10 × 5,000 = $5,500 Unfavorable.

Question 12

Chrono Corp. records its direct materials price variance at the time of purchase. The company had a favorable direct materials price variance of $3,600 for the month. During the period, the company paid $176,400 to purchase 36,000 kilograms of raw material. What is the standard price per kilogram for the raw material?

  1. $4.80
  2. $4.90
  3. $5.00 (correct answer)
  4. $5.10
Explanation: The formula for the direct materials price variance is (Actual Price - Standard Price) × Actual Quantity Purchased. \nFirst, find the actual price (AP): $176,400 / 36,000 kg = $4.90 per kg. \nThe variance is 3,600Favorable,whichisrepresentedasanegativenumber(3,600 Favorable, which is represented as a negative number (-3,600). \nSet up the equation: (AP - SP) × AQP = Variance \n($4.90 - SP) × 36,000 = $-3,600 \n$4.90 - SP = $-3,600 / 36,000 \n$4.90 - SP = $-0.10 \nSP = $4.90 + $0.10 = $5.00.

Question 13

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?

  1. $34,800 (correct answer)
  2. $36,000
  3. $37,200
  4. $34,500
Explanation: First, calculate the total standard cost for the quantity purchased. \nTotal 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 \nActual Cost = $36,000 - $1,200 = $34,800.

Question 14

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?

  1. $15,000 Unfavorable (correct answer)
  2. $13,200 Unfavorable
  3. $12,500 Favorable
  4. $15,000 Favorable
Explanation: The direct materials price variance is calculated as (Actual Price - Standard Price) × Actual Quantity Purchased. \nFirst, calculate the actual price per gallon: $415,000 / 25,000 gallons = 16.60pergallon.\nNext,calculatethepricevariance:(16.60 per gallon. \nNext, calculate the price variance: (16.60 - $16.00) × 25,000 gallons = $0.60 × 25,000 = $15,000. \nSince the actual price is greater than the standard price, the variance is Unfavorable.

Question 15

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?

  1. $615,000 (correct answer)
  2. $585,000
  3. $600,000
  4. $630,000
Explanation: 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). \nFirst, find the total standard cost of the materials purchased: 50,000 kg × $12.00/kg = 600,000.\nThepricevarianceisthedifferencebetweentheactualcostandthestandardcostforthequantitypurchased.\nPriceVariance=ActualCost−StandardCost\n600,000. \nThe price variance is the difference between the actual cost and the standard cost for the quantity purchased. \nPrice Variance = Actual Cost - Standard Cost \n15,000 Unfavorable = Actual Cost - $600,000 \nActual Cost = $600,000 + $15,000 = $615,000. \nSince all materials purchased were used, this is also the actual cost of direct materials used.

Question 16

A company reported a total direct materials flexible-budget variance of $1,700 Unfavorable. The company's records also showed a direct materials quantity variance of $2,500 Favorable. What was the direct materials price variance?

  1. $800 Favorable
  2. $4,200 Unfavorable (correct answer)
  3. $800 Unfavorable
  4. $4,200 Favorable
Explanation: The total direct materials flexible-budget variance is the sum of the price variance and the quantity variance. Treat Unfavorable variances as positive numbers and Favorable variances as negative numbers. \nTotal Variance = Price Variance + Quantity Variance \n+1,700=PriceVariance+(1,700 = Price Variance + (-2,500) \nPrice Variance = 1,700−(1,700 - (-2,500) \nPrice Variance = $1,700 + $2,500 = $4,200. \nSince the result is positive, the variance is Unfavorable.

Question 17

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?

  1. $2.00 (correct answer)
  2. $2.10
  3. $2.30
  4. $2.40
Explanation: The formula for the direct materials price variance is (Actual Price - Standard Price) × Actual Quantity Purchased. We can solve for the Standard Price (SP). \nAn Unfavorable variance is a positive number. \n4,000=(4,000 = (2.20 - SP) × 20,000 pounds \n$4,000 / 20,000 = 2.20−SP\n2.20 - SP \n0.20 = $2.20 - SP \nSP = $2.20 - $0.20 = $2.00.

Question 18

Orion Corp. isolates its materials price variance at purchase. The company's standard cost for Material X is $20 per yard. During July, Orion purchased 5,000 yards of Material X. The journal entry to record the purchase included a credit to Direct Materials Price Variance for $2,000. What was the total amount credited to Accounts Payable for this purchase?

  1. $102,000
  2. $100,000
  3. $98,000 (correct answer)
  4. $96,000
Explanation: A credit to the Direct Materials Price Variance account indicates a Favorable variance. The journal entry for a purchase with a favorable price variance is: \nDebit: Materials Inventory (at standard cost) \nCredit: Direct Materials Price Variance \nCredit: Accounts Payable (at actual cost) \nFirst, calculate the standard cost of the purchase: 5,000 yards × $20/yard = $100,000. This is the debit to Materials Inventory. \nWe are given the credit to the variance account is $2,000. \nTo balance the entry, the credit to Accounts Payable must be the standard cost less the favorable variance: $100,000 - $2,000 = $98,000. This represents the actual cost of the purchase.

Question 19

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?

  1. $1,500 unfavorable from Transaction 1 and $500 favorable from Transaction 2
  2. $1,000 unfavorable total, combining both transactions into a single variance calculation (correct answer)
  3. $1,500 unfavorable total, since unfavorable variances cannot be offset by favorable ones
  4. $2,000 unfavorable total, representing the sum of absolute values from both transactions
Explanation: Transaction 1: ($12.50 - $12.00) × 3,000 = 1,500unfavorable.Transaction2:(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.

Question 20

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?

  1. $6,750 unfavorable, recorded only when the 12,000 pounds are used in production
  2. $5,400 unfavorable, calculated on the 12,000 pounds used in production during June
  3. $6,750 unfavorable, recorded in full when the 15,000 pounds were purchased in June (correct answer)
  4. $5,400 unfavorable for June with $1,350 unfavorable deferred until July when remaining inventory is used
Explanation: Price variance is recorded when materials are purchased, not when used. Actual price = $67,500 ÷ 15,000 = 4.50perpound.Pricevariance=(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.