Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company
ID: 2390150 • Letter: C
Question
Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:Standard Standard Cost
Quantity per bag
Direct material 20 pounds $8.00
Direct labor 0.1 hours $1.10
Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds
1. The materials price variance for January is
A. $1,640 U.
B. $1,640 F.
C. $1,300 U.
D. $1,700 F.
Explanation / Answer
MPV=(AP*AQ)-(SP*AQ) or rewrite simpler: MPV=AQ(AP-SP) You will need the actual price purchased=$32,300/85,000=$.38 per pound Also the standard price=$8.00/20 lbs=$.40 per pound 85000(.38-.40) =-1700 Pay no attention to the sign on the answer. Decide if it is favorable or unfavorable by looking at the data. The actual purchase price is .38 which is less than the standard price of .40. That is favorable! So you get: 1700 F