A Company Established a Direct Material Standard of 2 Pounds

question 119

Multiple Choice

A company established a direct material standard of 2 pounds of material at a cost of $6 per pound for unit produced.During August the company produced 6,000 units of product; 10,000 pounds of direct material that cost $6.50 per pound were used in the production process.Compute the direct material price variance for August.

• A) $5,000 unfavorable
• B) $12,000 unfavorable
• C) $5,000 favorable
• D) $12,000 favorable
• E) $7,000 favorable

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Definitions:

Trade-In Allowance

The value subtracted from the price of a new item when an old item is given as part of the deal.

Book Value

The net value of an asset or company calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

Accumulated Depreciation

The total amount of depreciation expense that has been charged to a fixed asset since it was in service, reducing its book value.

Accumulated Depreciation

The cumulative depreciation of an asset up to a single point in its life, reflecting the loss of value over time.