Asked by Logan MacNeil on May 12, 2024
Verified
Ravena Labs., Incorporated makes a single product which has the following standards:Direct materials: 2.5 ounces at $20 per ounceDirect labor: 1.4 hours at $12.50 per hourVariable manufacturing overhead: 1.4 hours at 3.50 per hourVariable manufacturing overhead is applied on the basis of standard direct labor-hours. The following data are available for October:3,750 units of compound were produced during the month.There was no beginning direct materials inventory.Direct materials purchased: 12,000 ounces for $225,000.The ending direct materials inventory was 2,000 ounces.Direct labor-hours worked: 5,600 hours at a cost of $67,200.Variable manufacturing overhead costs incurred amounted to $18,200.Variable manufacturing overhead applied to products: $18,375.The materials price variance for October is:
A) $15,000 Unfavorable
B) $15,000 Favorable
C) $25,000 Unfavorable
D) $25,000 Favorable
Materials Price Variance
The difference between the actual cost of materials used in production and the expected (or standard) cost of materials.
Variable Manufacturing Overhead
Costs that vary in total in direct proportion to changes in the volume of production, such as indirect materials and utility costs directly tied to production.
- Attain proficiency in evaluating and interpreting direct materials variances, with a focus on discerning between materials price and quantity variances.
Verified Answer
VN
Vuyisile NgwenyaMay 16, 2024
Final Answer :
B
Explanation :
To calculate the materials price variance, we use the formula:
Materials price variance = (actual price - standard price) x actual quantity
Actual quantity = Direct materials purchased - Ending direct materials inventory
Actual quantity = 12,000 - 2,000
Actual quantity = 10,000 ounces
Standard price = $20 per ounce
Actual price = $225,000 / 12,000 = $18.75 per ounce
Materials price variance = ($18.75 - $20) x 10,000
Materials price variance = $15,000 favorable
Materials price variance = (actual price - standard price) x actual quantity
Actual quantity = Direct materials purchased - Ending direct materials inventory
Actual quantity = 12,000 - 2,000
Actual quantity = 10,000 ounces
Standard price = $20 per ounce
Actual price = $225,000 / 12,000 = $18.75 per ounce
Materials price variance = ($18.75 - $20) x 10,000
Materials price variance = $15,000 favorable
Learning Objectives
- Attain proficiency in evaluating and interpreting direct materials variances, with a focus on discerning between materials price and quantity variances.