Answer :
The direct materials price variance for Exeter Company is $1,976 unfavorable. This indicates that the company paid $1,976 more for the actual quantity of materials purchased compared to the standard price of $26 per pound.
Option a is correct.
- 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. It helps identify whether the company paid more or less for materials compared to the expected standard cost. The formula to calculate the direct materials price variance is:
- Direct Materials Price Variance = (Actual Quantity * Actual Price) - (Actual Quantity * Standard Price)
- Given the information provided:
- 1. Actual quantity purchased: 2,470 pounds
- 2. Actual price paid per pound: $66,196 / 2,470 pounds = $26.80 (rounded)
- 3. Standard price per pound: $26.00
- Substitute the values into the formula:
- Direct Materials Price Variance = (2,470 pounds * $26.80/pound) - (2,470 pounds * $26.00/pound)
- Direct Materials Price Variance = $66,196 - $64,220 = $1,976 (Unfavorable)
- This variance indicates that Exeter Company paid $1,976 more for the actual quantity of materials purchased than it should have, based on the standard price. This could be due to factors such as changes in market prices, supplier negotiations, or purchasing inefficiencies.
- Hence the correct option is (a) - $1,976 unfavorable.
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