Perkins Company, which has a standard cost system, had 500 pounds of raw materia

Question

Perkins Company, which has a standard cost system, had 500 pounds of raw material X in its inventory at June 1, purchased in May for $1.20 per pound and carried at a standard cost of $1.00 per pound.

The following information pertains to raw material X for the month of June:


* Actual pounds purchased = 1,400
* Actual pounds used = 1,500
* Standard pounds allowed for actual production = 1,300
* Standard cost per pound = $1.00
* Actual cost per pound = $1.10


The unfavorable materials purchase price variance for raw material X for June was:
1) $ 0.
2) $130.
3) $140.
4) $150.

Explanation / Answer

The formula for calculating the Material price variance is

(Actual price - Standard price) * Actual quantity

According to the given information,

Actual price = $1.10
                 
Standard price = $1.00
                     
Actual quantity is the quantity that is actually purchased but not used.

Actual quantity = 1,400

Substituting the values in the above formula, we get

         Direct material price variance = ($1.10 - $1.00) * 1,400

                                                      = $0.10 * 1400

                                                      = $140

Therefore, the direct material price variance is $140

The correct option is 3) $140

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