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Greetings sir,there is an example on the study hub that is puzzling me.how do you obtain the actual price to arrive at the material price variance in this example;
An organization has a budgeted material cost of $360,000 for 80,000 units per month.Each unit is budgeted to use 3 kg of materials.The standard cost of material is $1.50 per kg.Actual materials in the month cost $364,095 for 81,000 units and 234,900kg were purchased and used.I have managed to understand how the conclusion on the material total variance being $405(F) and material usage variance $12,150(F).The material price variance is given as $11,745(A).They purchases 234,900 kg and paid $364,095.
The standard cost is $1.50 per kg, and therefore they should have paid 234,900 x $1.50 = $352,350.
Therefore the price variance is 364,095 – 353,350 = $11,745 (A)
(You do not need to know the actual price paid per kg, but if you did want it then it is $364,095 / 234,900 = $1.55.
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