Multiple choice question based on Variance Analysis.
Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.
|
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Standard
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Standard
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Standard
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|
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Quantity
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Price
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Cost
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Direct materials
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8 pounds
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$1.80 per pound
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$14.40
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Direct labor
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0.25 hour
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$8.00 per hour
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$2.00
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During May, Arrow purchased 160,000 pounds of direct material at a total cost of $304,000. The total direct labor wages for May were $37,800. Arrow manufactured 19,000 units of product during May using 142,500 pounds of direct material and 5,000 direct labor hours.
The direct material price variance for May is (note that the purchase price variance is based on the amount purchased - while usage variance is based on amount used):
Choose one answer.
a. $16,000 favorable.
b. $16,000 unfavorable.
c. $14,250 favorable.
d. $14,250 unfavorable.