ACCA MA · Chapter 12 · Question 2 of 10
A company bought 8,000 kg of material for $35,200, and 7,600 kg were used in production. The standard price is $4.50 per kg, and raw material inventory is valued at standard cost. What is the material price variance?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $800 favourable
Explanation
When inventory is valued at standard cost, the price variance is calculated on the quantity purchased. Standard cost of purchases = 8,000 x 4.50 = $36,000. Actual cost = $35,200. Variance = 36,000 - 35,200 = $800 favourable, because the material cost less than standard ($4.40 per kg instead of $4.50).
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