Given AQ x AP = $150,000 and AQ x SP = $145,000, compute the direct materials price variance.

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Multiple Choice

Given AQ x AP = $150,000 and AQ x SP = $145,000, compute the direct materials price variance.

Explanation:
Direct materials price variance shows whether the price paid per unit differs from the standard price. It’s calculated as AQ × (AP − SP). Here, AQ × AP is 150,000 and AQ × SP is 145,000, so the variance = 150,000 − 145,000 = 5,000. Since the actual cost at the actual price is higher than the standard cost for the same quantity, this variance is unfavorable. So the result is a $5,000 unfavorable variance.

Direct materials price variance shows whether the price paid per unit differs from the standard price. It’s calculated as AQ × (AP − SP). Here, AQ × AP is 150,000 and AQ × SP is 145,000, so the variance = 150,000 − 145,000 = 5,000. Since the actual cost at the actual price is higher than the standard cost for the same quantity, this variance is unfavorable. So the result is a $5,000 unfavorable variance.

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