A company produced 1,000 units, but standard direct materials were budgeted for 950 units. If the actual cost was $10,500 for 1,050 kg of material at $10/kg, and the standard allows 1 kg per unit at $9.50/kg, what is the direct materials price variance?

Question: A company produced 1,000 units, but standard direct materials were budgeted for 950 units. If the actual cost was $10,500 for 1,050 kg of material at $10/kg, and the standard allows 1 kg per unit at $9.50/kg, what is the direct materials price variance?

Answer options:

• $525 unfavourable
• $525 favourable ✅ $1,050 unfavourable
• $1,050 favourable

Correct answer: $1,050 unfavourable

Explanation: The direct materials price variance is calculated as (Actual Price - Standard Price) × Actual Quantity. So, ($10/kg - $9.50/kg) × 1,050 kg = $0.50/kg × 1,050 kg = $525 unfavourable.