Choice "C" is correct. $12,500 unfavorable materials price variance.
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| Standard price per unit $60,000 ÷ (12,000 × 2 each) = | $ 2.50 |
| Actual price per unit $105,000 ÷ 35,000 units = | 3.00 |
| Unfavorable price variance per unit | .50 |
| Actual units of material | × 25,000 |
| Unfavorable materials price variance | $ 12,500 |
From our SAD DADS mnemonics, we know that the material price variance is calculated as follows:
P× A |
Price variance× Actual units |
We also know that the difference is "SAD", as follows:
Actual Amount of Materials Used:The actual amount of materials used is actually calculated in a separate question (D93-1.23). The calculated units actually used is 25,000. We know that the usage variance is unfavorable $2,500. So, we solve for the "difference in usage" as follows:
U× S |
($2,500)× $2.50 |
D$2,500) / $2.50 |
D |
So, the unfavorable units used amounted to 1,000. The facts of the question tell us that 12,000 units were produced in November. At two units of raw materials per unit produced, that’s a standard of 24,000 units of raw materials. Actual units used (S − A to produce the unfavorable usage variance of $2,500 (alternatively, 24,000 standard units plus 1,000 unfavorable units used.
Standard units - 12,000 × 2 per unit | = | 24,000 |
Unfavorable quantity variance of %
($2,500 ÷ $2.50 per unit standard) | = | 1,000 |
Actual units used to produce non output | | 25,000 |
So, we have the "A" amount for the actual amount used.Standard Cost Per Unit The standard cost per unit is actually calculated in a separate question (D93-1.22). The calculated standard cost per unit is $2.50. The standard allowed for the material was $60,000, and 12,000 units were produced in November. Therefore, the materials cost on the "standard" was $5.00 per unit [$60,000/12,000 units]. However, we are told that it takes two units of raw material to make one unit of completed goods. So, the standard price for one unit of material is $2.50 [$5.00/2]. We have the "S" now.Final StepAll that is left if to calculate the "D", and the only part of it we need is the actual price per unit paid. We know that 35,000 units of material was purchased for $105,000, so the actual cost per unit was $105,000/35,000, or $3.00/unit. Now, we can calculate the "difference" as follows:
S − A |
$2.50 − $3.00 |
D$0.50) |
Putting this into the PURE mnemonic, we get the following:
P× A |
P$0.50) × 25,000 units |
P$12,500) |
NOTE: Typically, the materials price variance is based on units purchased (35,000 in this case); however, in this case, the question specifically asks for the materials price variance for units USED (25,000 in this case).
