Actual Purchase Price Question Accounting Need Help

Question

Construction Safety Corporation manufactures orange safety suits for road workers. The following information relates to the corporation's purchases and use of materials for month of April :

 

Materials Purchased : 8,500 yards

 

Materials Used In Production : 8,000 yards

 

Standard Materials Allowed For Suits Produced : 8,200 yards

 

 

Construction Safety's materials (purchase) price variance for April was $1,200 favorable. Its materials quantity variance for April was $900 favorable.  What was the actual purchase price per yard of material?

 

A) $4.50 B) $4.36 C) $2.85 D) $3.00 E) None of Above

 

Answer was B) but I need help with steps as to how.

 

Thanks.

Answer 1

In accounting, we are constantly comparing What You Planned (Standard) vs. What Actually Happened (Actual).

The Core Intuition

1. Price Variance (MPV): This measures cost. If you planned to pay $4.50 per yard but actually paid $4.36, you saved money. Because you kept your costs below the standard, it is Favorable.
2. Quantity Variance (MQV): This measures efficiency. If you planned to use 8,200 yards to make your suits but only needed 8,000 yards, you were more efficient than planned. Because you used less than the standard, it is Favorable.

Step 1: Find the Standard Price (SP)

Using the Materials Quantity Variance (MQV):

MQV = (SQ – AQ_used)  x  SP

900 = (8,200 - 8,000)  x SP

900 = 200  x SP

SP = $4.50

Step 2: Find the Actual Price (AP)

Using the Materials Price Variance (MPV):

MPV = (SP - AP)  x AQ_purchased

1,200 = (4.50 - AP)  x 8,500

0.141 = 4.50 - AP

AP = $4.36

Correct Answer: B) $4.36