The formula for the price variance is (AP ? SP) × AQ. The actual price is $3.80 per pound. ($475,000 ÷ 125,000). The standard price is $3.60 per pound. This answer results from using the quantity consumed by production (108,000 lb.) as the Actual Quantity (AQ) in the formula. However, the question asks for the purchase price variance. Therefore, we need to use the actual quantity purchased in the formula (125,000 lb.), not the quantity consumed by production. Furthermore, the variance is positive. A positive variance is unfavorable for a cost item because it means the actual cost was greater than the planned cost.
The price variance is (AP ? SP) × AQ. The actual price is $3.80 per pound ($475,000 ÷ 125,000). The standard price is $3.60 per pound. The actual quantity purchased is 125,000 pounds. Note that we use the actual quantity purchased in the formula because we need to determine the purchase price variance. The purchase price variance is ($3.80 ? $3.60) × 125,000 = $25,000 unfavorable. Since the actual purchase price was higher than the standard price, the variance is positive. A positive variance is unfavorable for a cost item because it means the actual cost was greater than the planned cost.
The variance is unfavorable because the actual price – $3.80 per pound ($475,000 ÷ 125,000) – was greater than the standard price of $3.60 per pound.
The formula for the price variance is (AP ? SP) × AQ. The actual price is $3.80 per pound. ($475,000 ÷ 125,000). The standard price is $3.60 per pound. This answer results from using the quantity consumed by production (108,000 lb.) as the Actual Quantity (AQ) in the formula. However, the question asks for the purchase price variance. Therefore, we need to use the actual quantity purchased in the formula (125,000 lb.), not the quantity consumed by production.
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During May, Jackson purchased 125,000 pounds of direct materials at a total cost of $475,000. The total factory wages for May were $364,000, 90% of which were for direct labor. Jackson manufactured 22,000 units of product during May using 108,000 pounds of direct materials and 28,000 direct labor hours. The purchase price variance for the direct materials acquired by Jackson Industries during May is