Mitchell Co. uses standard costing and calculates materials and labor variances like you saw in the text and videos. Mitchell expected to produce 5,100 units in 2015 and set the following standards for that year: For direct material (DM) the standard price is $20 per pound of material and the standard quantity 5 pounds of materials are needed for each unit produced. For direct labor (DL) the standard price is $18 per hour and the standard quantity is 2 labor hours needed for each unit produced.
In 2015, Mitchell actually produced 5,000 units of product. Mitchell spent $497,250 on 25,500 pounds of DM (all of these materials were requisitioned by the production department in 2015). Mitchell spent $194,750 on 9,500 DL hours.
What is the materials price variance, and is it favorable or unfavorable?
a. $2,750 favorable
b. $12,750 favorable
c. $38,250 favorable
d. $12,750 unfavorable
e. $38,250 unfavorable
f. $47,250 unfavorable