Cox Engineering performs cement core tests in its laboratory. The following stan
ID: 2435370 • Letter: C
Question
Cox Engineering performs cement core tests in its laboratory.The following standards have been set for each core test performed:
Direct materials
* Standard hours/quantity 3 pounds
* Standard price/rate $0.75 per pound
Direct labor
* Standard hours/quantity 0.4 hours
* Standard price/rate $12 per hour
Variable manufacturing overhead
* Standard hours/quantity 0.4 hours
* Standard price/rate $9 per hour
During March, the laboratory performed 2,000 core tests.
On March 1 no direct materials (sand) were on hand.
Variable manufacturing overhead is assigned to core tests on the basis of direct labor hours.
The following events occurred during March:
* 8,600 pounds of sand were purchased at a cost of $7,310.
* 7,200 pounds of sand were used for core tests.
* 840 actual direct labor hours were worked at a cost of $8,610.
* Actual variable manufacturing overhead incurred was $3,200.
The materials price variance for March is:
1) $860 unfavorable.
2) $860 favorable.
3) $281 unfavorable.
4) $281 favorable.
Save
Explanation / Answer
The formula for calculating the Material price variance is
(Actual price - Standard price) * Actual quantity
According to the given information,
The actual price is obtained by dividing the (Actual cost / Actual quantity)
Actual price = $7,310 / 8600
= $0.85
Standard price = $0.75
Actual quantity = 8600
Substituting the values in the above formula, we get
Material price variance = ($0.85 - $0.75) * 8600
= $860 favourable
Since the value is positive, the price variance is favorable.
Therefore, the correct option is 2) $860 favorable.