ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was $60,000, and there was an unfavorable quantity variance of $2,500.
The materials price variance for the units used in November was:
SP(SQ-AQ), 5(12000-x)=-2500U; x =12500; $5/2=$2.5; 12500 * 2 = 25000
AQ(SP-AP), 25000(2.5-3)= -12,500U
The answer is $12,500 Unfavorable.
I understand all the math parts, but
I don't understand why the 12,000 units of product is treated at SQ Allowed. By reading the question, I thought the 12,000 is AQ used. Can anyone explain this or the correct way to approach this problem?