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The actual price is $6.30 per pound against a standard of $6.00, and 8,400 pounds are actually used. What is the direct materials price variance?
A$2,580 unfavourable
B$2,520 unfavourable
C$2,520 favourable
D$1,320 unfavourable
Answer & Solution
Correct answer: B. $2,520 unfavourable
1. The price variance is actual price minus standard price, multiplied by the actual quantity.
2. Actual price minus standard price is $6.30 minus $6.00, which is $0.30.
3. $0.30 times 8,400 pounds gives $2,520.
4. A positive result means more was paid per pound than planned, so the variance is unfavourable.
5. The price variance always uses the actual quantity, so using the 8,600 standard pounds would wrongly give $2,580.
6. $1,320 is the net of the price and quantity variances rather than the price element alone.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.2 Direct Materials Cost Variance_
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