A Suit Company Has The Following Standards To Make A Suit

A Suit Company Has The Following Standards To Make One Suit

A suit company has the following standards to make one suit: Standard Quantity Standard Price Direct materials 4 yards per unit $9.50 per yard Direct labor 2 hours per unit $12.00 per hour The company purchased 4,000 yards of material in March for $40,000. The company used 3,800 yards in March in order to make 900 suits. The direct materials price variance is:

Paper For Above instruction

The problem provides standards for materials and actual purchase data, and asks for the calculation of the direct materials price variance. To analyze this, we need to understand the components involved in variance analysis. The direct materials price variance measures the difference between the actual cost paid for materials and the standard cost that should have been paid for the actual quantity purchased, attributable to differences in price.

Given Data:

  • Standard quantity per suit: 4 yards
  • Standard price per yard: $9.50
  • Actual quantity purchased: 4,000 yards
  • Actual total cost of materials: $40,000
  • Actual suits produced: 900 suits

First, we determine the standard price per yard, which is given as $9.50.

The actual number of yards purchased was 4,000 yards for $40,000, yielding an actual price per yard:

Actual Price per Yard = Total Actual Cost / Total Actual Quantity Purchased = $40,000 / 4,000 yards = $10.00 per yard.

Next, the direct materials price variance formula is:

Materials Price Variance = (Actual Price - Standard Price) × Actual Quantity Purchased

Substituting the known values:

Materials Price Variance = ($10.00 - $9.50) × 4,000 yards = $0.50 × 4,000 yards = $2,000 unfavorable.

Because the actual price paid ($10.00) exceeds the standard price ($9.50), the variance is unfavorable, indicating that the company paid more per yard than the standard allows.

Therefore, the direct materials price variance for March is $2,000 unfavorable.

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