Jake’s Cheese Company produces gourmet cheese for resale at local grocery stores. Jake expected to use 3.0 pounds of direct materials to produce one unit (batch) of product at a cost of $8 per pound. Actual results indicate 45,000 batches of cheese were sold. The company purchased 160,000 pounds of materials at $7.50 per pound and used 145,000 pounds in production.

Required: Calculate the materials price variance.

Question

27-12-2024
Business

High School

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Jake’s Cheese Company produces gourmet cheese for resale at local grocery stores. Jake expected to use 3.0 pounds of direct materials to produce one unit (batch) of product at a cost of $8 per pound. Actual results indicate 45,000 batches of cheese were sold. The company purchased 160,000 pounds of materials at $7.50 per pound and used 145,000 pounds in production.

Required: Calculate the materials price variance.

Answer :

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Final answer:

Jake's Cheese Company has a favorable materials price variance of $80,000 because they were able to purchase materials for $0.50 less than the standard price per pound.

Explanation:

The materials price variance can be calculated based on the formula: Materials price variance = (Actual quantity purchased * Actual price) - (Actual quantity purchased * Standard price). Here, the actual quantity purchased is 160,000 pounds, the actual price is $7.50 per pound, and the standard price is $8 per pound. Substituting these values into the formula gives: Materials price variance = (160,000 * $7.50) - (160,000 * $8), which equals -$80,000.

So, Jake's Cheese Company has a favorable materials price variance of $80,000, because the company purchased materials for $0.50 less than the standard price per pound.

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