Question

4. During the holidays, November and December, you saw there was a sale on your favorite bottles of Raspberry Sljivovica – (a delicious brandy). It was sale priced at $40 a bottle. You planned to buy ten bottles. When you got to the store they told you the sale was over and the price was the regular $50 a bottle. But they said the alcohol content was 50% instead of the usual 45%. So, maybe you don’t need the same quantity per bottle to get that funny feeling. Anyway, the accountant in you calculated:
   1. A $100 favorable price variance.
   2. A $100 unfavorable price variance.
   3. You got what you paid for, there was no price variance in terms of your expectations and what you actually paid.

Answer 1

Ans:

When you saw a sale board with a sale price of $40 per bottle and you plan to buy 10 Bottles. Expected amount you were going to pay for These 10 Bottles is $400 ($40*10). But when you visit the store you find that Bottle is priced @$500 ($50*10). So their is an Unfavourable Price Varaince. For better quality there will be favourable usage variances.

So Standard Cost : $400

Actual Cost : $500

Material Price Variance : $400 - $500 = $100 Unfavourable

So the accountant is you will calculate an Unfavorable price variance of $100.

Correct Answer is option B.

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