A company bought and used 5,200 kg of material at £4.30 per kg to make 1,000 units. The standard is 5 kg per unit at £4.00 per kg. What is the material price variance?
Answer and explanation
Correct answer: A. £1,560 adverse
- Step 1: Price variance = (actual price - standard price) × actual quantity purchased.
- Step 2: (£4.30 - £4.00) × 5,200 kg = £1,560.
- Step 3: The actual price is higher than standard, so the variance is adverse.
Answer
£1,560 adverse.
Why not the others: Favourable would require an actual price below standard. £1,500 uses the standard quantity of 5,000 kg instead of the actual quantity of 5,200 kg. £800 is the material usage variance, not the price variance.
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