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The Alpha Company produces toys for national distribution
The Alpha Company produces toys for national distribution. Standards for a particular toy are:
Materials: 12 grams per unit at 56′ per gram.
Labour: 2 hours per unit at $2.75 per hour.
During the month of December, the company produced 1,000 units. Information for the month follows:
Materials: 14,000 grams were purchased and used at a total cost of $7,140.
Labour: 2,500 hours worked at a total cost of $8,000.
What was the materials price variance?
Expert Solution
Computation of the material price variance:-
Material price variance = (Standard price - Actual price) * Actual quantity
= ($0.56 - ($7,140 / 14,000)) * 14,000
= ($0.56 - $0.51) * 14,000
= $0.05 * 14,000
= $700 (F)
The material price variance is favorable because the standard price is higher than the actual price.
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