Asked by michelle hopkins on May 20, 2024
Verified
Luma Incorporated has provided the following data concerning one of the products in its standard cost system. The company has reported the following actual results for the product for September:
The raw materials price variance for the month is closest to:
A) $9,081 Unfavorable
B) $9,450 Favorable
C) $9,450 Unfavorable
D) $9,081 Favorable
Raw Materials Price Variance
The difference between the actual cost and the standard cost of raw materials used in production, reflecting price fluctuations.
Standard Cost System
An accounting system that uses predetermined costs for products or services to compare against actual costs for performance evaluation.
Actual Results
The real outcomes or final figures that have been achieved by a business after a specific period, which can be compared against forecasts or budgets.
- Facilitate the evaluation and calculation of discrepancies in direct material costs, focusing on price and quantity variances.
Verified Answer
Actual price per unit = $50,000 ÷ 10,000 = $5.00
Standard price per unit = $4.50
Therefore, the raw materials price variance is:
($5.00 - $4.50) x 10,000 units = $5,000 Favorable
Since the question is asking for the variance in dollars, we need to express the answer as an absolute value (ignoring whether it is favorable or unfavorable). Therefore, the raw materials price variance for the month is $5,000.
However, the answer choices are all in the form of a signed number (either positive or negative). To convert our answer to this format, we need to determine whether the variance is favorable or unfavorable based on the actual cost of materials purchased.
Actual cost of materials purchased = $52,500
Expected cost of materials based on standard = $45,000
Therefore, the actual cost is higher than expected, indicating an unfavorable variance.
The absolute value of the unfavorable variance is $5,000, so the answer is:
C) $9,450 Unfavorable
Learning Objectives
- Facilitate the evaluation and calculation of discrepancies in direct material costs, focusing on price and quantity variances.
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