A standard cost card shows 3 kg of material per unit at £4 per kg. In the period 2,000 units were made, using 6,300 kg of material that cost £26,460. What is the material price variance?
Answer and explanation
Correct answer: B. £1,260 adverse
- Step 1: Actual cost of 6,300 kg = £26,460, so the actual price is £4.20 per kg.
- Step 2: Standard cost of the actual quantity = 6,300 × £4 = £25,200.
- Step 3: Variance = £25,200 − £26,460 = £1,260, adverse because the actual cost is higher.
Answer
£1,260 adverse.
Why not the others: £1,260 favourable: The actual price (£4.20 per kg) exceeds the standard of £4.00, so it is adverse. £1,200 adverse: This is the usage variance (300 kg × £4), not the price variance. £2,460 adverse: This is the total material variance (price plus usage) and not the price variance alone.
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