V Co has a budgeted material cost of 125,000 for the...

V Co has a budgeted material cost of $$\$ 125,000$$ for the production of 25,000 units per month. Each unit is budgeted to use $2 \mathrm{~kg}$ of material. The standard cost of material is $$\$ 2.50$$ per kg. Actual materials in the month cost $$\$ 136,000$$ for 27,000 units and $53,000 \mathrm{~kg}$ were purchased and used. What was the adverse material price variance? $$ \$ \square $$

V Co has a budgeted material cost of $$\$ 125,000$$ for the production of 25,000 units per month. Each unit is budgeted to use $2 \mathrm{~kg}$ of material. The standard cost of material is $$\$ 2.50$$ per kg.
Actual materials in the month cost $$\$ 136,000$$ for 27,000 units and $53,000 \mathrm{~kg}$ were purchased and used.
What was the adverse material price variance?
$$
\$ \square
$$

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Key Concepts

Standard Costing

Standard costing involves assigning a predetermined cost to materials, labor, and overhead for a given level of production. This system sets benchmarks that facilitate cost control by allowing a business to compare what was expected to spend against what was actually spent, thereby highlighting any discrepancies that need to be addressed.

Material Price Variance

This is a variance analysis metric comparing the actual cost per unit of input to its standard (or budgeted) cost per unit, multiplied by the actual quantity purchased. It helps in identifying if materials are being purchased at a cost higher or lower than expected, and an adverse variance indicates materials were bought at a higher price than planned.

Variance Analysis

Variance analysis is the process of breaking down and investigating the differences between actual costs and standard or budgeted costs. It serves as a crucial tool in managerial accounting by indicating areas where performance deviates from expectations, prompting further investigation to manage costs better.

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