Materials Price Variance
Response to the following problem:
Hogan Manufacturing Company has just adopted a standard cost system. You have been asked to analyze the materials purchases and usage for the month of August to determine the materials price variance to be recorded at the end of the month. During August, 5,000 gallons of a chemical were purchased at $3.10 per gallon. Only 4,600 gallons were put into production. The standard price per gallon is $3.20.
Compute the following variances:
1. The materials price variance if the chemical is carried in inventory at standard price (i.e., the price variance is accounted for at the time of purchase).
2. The materials price variance if the chemical is carried in inventory at actual price and is charged to Work-in-Process Inventory at the standard price (i.e., the price variance is accounted for at the time of use in production).