Answer (D) is correct . If 1.5 yards remain in each unit after spoilage of 25% of the direct materials input, the total per unit input must have been 2 yards (1.5 ¡Â 75%). The standard unit direct materials cost is therefore $4.00 (2 yards ¡Á $2).

Answer (A) is incorrect because The 1.5 yards of good output should be divided (not multiplied) by 75% to determine the standard yards of material per unit.
Answer (B) is incorrect because The cost per unit excluding spoilage is $3.00.
Answer (C) is incorrect because The amount of $3.75 is found by adding 25% of the materials of the finished product as spoilage and then multiplying by the $2.00 cost per yard [(1.5 ¡Á 1.25) ¡Á $2].