Hello,
I ran into this question as following
A company isolates its raw material price variance in order to provide the earliest possible information to the manager responsible for the variance. The budgeted amount of material usage for the year was computed as follows.
150,000 units of finished goods x 3 pounds/unit x $2.00/pound = $900,000.
Actual results for the year were the following.
Finished goods produced 160,000 units
Raw materials purchased 500,000 pounds
Raw materials used 490,000 pounds
Cost per pound $2.02
The raw material price variance for the year was?
a. $9,600 unfavorable.
b. $9,800 unfavorable.
c. $10,000 unfavorable.
d. $20,000 unfavorable.
I fairly implied that the price variance is applied for used amount, which should be 490,000 pounds x (2.02 - 2) = $9,800 unfavorable (option b)
However, the answer used purchased amount 500,000 pounds x (2.02 - 2) = 10,000 unfavorable (option c)
If the question asked for purchase price variance, I would agree with the answer. Did I miss anything from the question indicating I should use purchased amount instead of used amount? Or should I use purchased amount for every material price variance?
Thank you guys.
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Kien Nguyen
Unemployed
Ottawa ON
Canada
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