Tommy's Toys produces two types of toys: trains and dolls. Tommy's uses stainless steel to manufacture the trains and plastic to manufacture the dolls. Information regarding the usage of steel and plastic for the past year follows:
Product Names Steel Plastic
Direct materials information
Standard pounds per unit 1 lb. 0.5 lb.
Standard Price (SP) per pound $1.50 ?
Actual Quantity (AQ) used per unit 1.5 lbs. 0.75 lbs.
Actual Price (AP) paid for material $1.25 $2.00
Actual Quantity Purchased (AQP) and used 2,500 lbs. 1,200 lbs.
Price variance ? $900 F
Quantity variance $206 U ?
Flexible budget variance ? $522 F
Number of units produced 275 550
What is the price variance for steel used to manufacture the trains?
A) $625 favorable
B) $103 favorable
C) $625 unfavorable
D) $103 unfavorable
A
Explanation: A)
DM Price Variance = (Standard Price (SP) - Actual Price (AP)) × Actual Quantity Purchased (AQP)
$625 F = ($1.50 - $1.25 ) × 2,500
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