Arrow Industries employs a standard cost system in which direct materials invent

Question

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.

During November, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.

What is the direct materials price variance?

A. $16,000 Favorable.

B. $16,000 Unfavorable.

C. $48,400 Unfavorable

D. $48,400 Favorable

During November, Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.

Explanation / Answer

Direct material price varince = (S.P - A.P.) x Actaul quantity purchased

= ($1.80-$1.90)x160000

= $16000 Unfavourable

Therefore answer will be (B).

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