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Price Variance and Material Usage Variance

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Error Correction, Inc. (ECI) makes a white liquid substance that is used to cover errors made on printed documents. ECI expects to use 4 ounces of a chemical known as Fatal per bottle of correction fluid. Fatal is expected to cost $.40 per ounce. Actual materials cost amounted to $.46 per ounce. ECI expected to make and sell 1,000,000 bottles of correction fluid during the accounting period. Actual production amounted to 900,000 bottles and 4,095,000 ounces.

Materials price variance for Fatal is:

a. $245,700 unfavorable
b. $245,700 favorable
c. $40,000 favorable
d. $40,000 unfavorable

Materials usage variance for Fatal is:

a. $198,000 favorable
b. $198,000 unfavorable
c. $245,700 favorable
d. $245,700 unfavorable

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Solution Summary

This solution contains step-by-step calculations to determine if the materials price variance and materials usage variance are favourable or unfavourable using actual quantity, actual price, standard quantity,and standard price.

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Materials price variance for Fatal is:

a. $245,700 unfavorable
Materials usage variance for Fatal is:

b. $198,000 unfavorable

Here AQ= Actual quantity

Here AP= Actual Price

Here SQ= Standard quantity

Here SP= Standard ...

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