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The variance is unfavorable because the actual price is higher than the standard price. See the correct answer for a complete explanation.
The price variance is calculated as follows: (AP ? SP) × AQ. The actual price is $1.90 per pound ($304,000 ÷ 160,000). The standard price is $1.80 per pound. Since the question asks for the direct materials purchase price variance, we use the amount of materials actually purchased (160,000 pounds) instead of the amount actually consumed by production (142,500 pounds) as the actual quantity. Thus, the purchase price variance is ($1.90 ? $1.80) × 160,000 = $16,000 unfavorable. The variance is unfavorable because the actual price was greater than the standard price.
In the calculation of the materials purchase price variance we use the amount of materials purchased (160,000), not the amount consumed by production (142,500). See the correct answer for a complete explanation.
The price variance is calculated as follows: (AP ? SP) * AQ. This answer is incorrect for two reasons. (1) In the calculation of the materials purchase price variance, we use the amount of materials purchased , not consumed by production. This answer uses the amount consumed. (2) The actual price is greater than the standard price, so the variance is unfavorable. See the correct answer for a complete explanation.