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Q1) Arrow Industries employs standard cost system in which direct materials inventory is carried at standard cost. Arrow has established following standards for prime costs of one unit of product.

   Standard Standard Standard
  Quantity Price Cost
Direct materials 8 pounds $1.80 per pound $14.40
Direct labor 0.25 hour $8.00 per hour $2.00

During May, Arrow bought 160,000 pounds of direct material at total cost of $304,000. Total direct labor wages for May were $37,800. Arrow produced 19,000 units of product during May by using 142,500 pounds of direct material and 5,000 direct labor hours.

Direct material price variance for May is (note that purchase price variance is based on amount purchased - while usage variance is based on amount used):

Select one answer.

a. $16,000 favorable.
b. $16,000 unfavorable.
c. $14,250 favorable.
d. $14,250 unfavorable.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M921513

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