The company has set the following standards for materials and labor: Standard qu

Question

The company has set the following standards for materials and labor: Standard quantity or hours per unit Standard price or rate Direct materials ? pounds per unit $? per pound Direct labor 3.0 hours per unit $10 per hour During the past month, the company purchased 7,000 pounds of direct materials at a cost of $17,500. All of this material was used in the production of 1,300 units of product. Direct labor cost totaled $36,750 for the month. The following variances have been computed: Materials quantity variance $1,375 U Total materials variance $375 F Labor efficiency variance $4,000 F Required: For direct materials: Compute the standard price per pound of materials

Explanation / Answer

Since overall variance is $375F, and material quantity variance is $1375U. The Material Price variance must be 375 + 1375 = $1750F (SP - AP) x Actual quantity = 1750 (SP - 17500/7000) x 7000 = 1750 Standard price per pound = $2.75 Hope this helps!

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