The Following Standards Have Been Established for a Raw Material

question 76

Essay

The following standards have been established for a raw material used to make product P62:
$\begin{array}{lrr} \text {Standard quantity of the material per unit of output } & \text {6.3pounds } \\ \text {Standard price of the material } & \text { \( \$ 15.50 \) per pound} \\\end{array}$

The following data pertain to a recent month's operations:
$$\begin{array} { l c } \text { Actual material purchased } & 6,700 \text { ounds } \\\text { Actual cost of material purchased } & \$ 100,500 \\\text { Actual material used in production } & 6,400 \text { pounds } \\\text { Actual output } & 920 \text { mits of product P62 }\end{array}$$
Required:
a. What is the material price variance for the month?
b. What is the material efficiency variance for the month?

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Definitions:

Price Ceilings

A legal maximum price set below the equilibrium price for a good or service, aimed at preventing prices from becoming too high.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to buy is equal to the amount that sellers want to sell, resulting in a balanced market.

Shortages

The situation where the demand for a product or service exceeds its supply in a market.

Price Ceiling

A government-imposed limit on the price charged for a product or service, intended to prevent prices from becoming too high.