Purchase Price Variance Managerial Accounting Need Help

Question

Carmel Inc has the following standards for the materials used for the production of their core product:

Standard Quantity Per Unit of Output : 8.3 lbs

Standard Price : 19.15 per pound

The following actual data pertain to operations concerning the product for the last month :

Actual Materials Purchased : 7000 lbs

Actual Cost of Materials Purchased : $141,375

Actual Materials Used In Production : 7100 lbs

Actual Output : 700 units

 

What is the purchase price variance of the materials for the month?

A) 30,114 Unfavorable B) $7,325 Unfavorable C) $5,410 Unfavorable D) $24,704 Unfavorable

Answer was B) but I don't get how, please show help with steps.

Answer 1

Standard Quantity Per Unit of Output : 8.3 lbs;  Standard Price : 19.15 per pound

thus, the projected cost for 700 units should be:  8.3lb/u x $19.15/lb x 700u = $111,261.50

 

Actual Materials Purchased : 7000 lb;  Actual Cost of Materials Purchased : $141,375
Actual Materials Used In Production : 7100 lb;  Actual Output : 700 units

thus, the materials consumption per unit was 7,100 lb ÷ 700 units = 10.14lb/u

the cost was $141,375 ÷ 7000 lb = $20.186/lb

material cost = $20.186/lb x 10.1lb/u x 700u = $142,715

 

Variance = [(Actual material usage/unit - standard material usage/unit) x Standard material cost/unit] x Actual number of units

Variance = [(10.14lb/u - 8.3lb/u) x $19.15/lb] x 700 units = $24,129

we then add this figure to the Standard expense = 111261+24129 = $135,390

Variance = Actual - Budget = $142,743 - 135,390 = $7,325; the variance is regarded as unfavorable because actual expenses exceeded budgeted (expected) expenses.

 

BUT the "answer" ignores the fact that less material was purchased than was used, and the costs should have been raised by $1,915 because an additional 100 pounds at standard costs were needed to produce the 700 units. in that case, the variance would have been $9,240