@ ScarletKnight – here is a simialer example from CPA Excel **** formatting not the best when copying
Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of materials at a cost of $70,000. The materials usage variance was $2,500 unfavorable, and the standard materials allowed for May production was 17,000 pounds. What was the materials price variance for May?
A. $17,500 favorable. <—-correct answer
B. $17,500 unfavorable.
C. $15,000 favorable.
D. $15,000 unfavorable.
This answer is correct. Using the model suggested in the study text to perform the calculations:
Units Price/Unit Total
Standard Costs 17,000 lbs. x Std. Price = ???
Actual Costs 17,500 lbs. x $4.00* = $70,000
Differences (500) lbs. ??? ???
*Actual Price = $70,000/17,500 lbs. = $4.00
Usage variance = ($2,500) = Difference in Units x Std. Price
= (500) x Std. Price
Std. Price = ($2,500) / (500) = $5.00 per unit
Substituting the standard price into the previous calculation, we now have:
Units Price/Unit Total
Standard Costs 17,000 lbs. x $5.00 = $85,000
Actual Costs 17,500 lbs. x $4.00* = $70,000
Differences (500) lbs. $1.00 $15,000
Price variance = Difference in Price x Actual Quantity Used =
$1.00 x 17,500 = 17,500 favorable various
Check: Usage Variance + Price Variance = Total Difference in Costs
($2,500) + $17,500 = $15,000
.