Choice "B" is correct. Price variance is computed as follows:
Price variance |
Price variance$20 - $18.50) x 11,200 |
Price variance$1.50 x 11,200$16,800 favorable |
The price variance is favorable because the actual price is less than the standard price.Choice "a" is incorrect. The price variance cannot be unfavorable because the actual price is less than the standard price. It is difficult to determine, however, where the $7,200 came from since there are 11,200 actual units; the price difference would have to be $.64 instead of $1.50, and there is nothing in the question that clearly generates that difference.Choice "c" is incorrect. In this answer, it seems that the price difference of $1.50 is incorrectly multiplied by the 10,000 budgeted units rather than the 11,200 actual units.Choice "d" is incorrect. The price variance cannot be unfavorable because the actual price is less than the standard price. It is difficult to determine, however, where the $24,000 came from; the price difference would have to be $2.14, and there is nothing in the question that clearly generates that difference.
