Final answer:
The direct materials price variance for last month was $1,200, indicating a favorable variance as the actual cost of the materials was less than the standard cost. This was calculated by subtracting the actual price per gallon from the standard price per gallon and multiplying by the actual quantity purchased.
Step-by-step explanation:
To calculate the direct materials price variance, we need to compare the actual cost of materials to the standard cost as defined by the company's per-unit standards. The company's per-unit standard is 2 gallons of direct materials at $8 per gallon. Last month, the company purchased 3,000 gallons of direct materials for $22,800.
The standard cost for 3,000 gallons would be 3,000 gallons × standard price per gallon, which equals 3,000 × $8 = $24,000. The actual cost is $22,800, so the company actually spent less on materials than the standard cost.
The direct materials price variance can be calculated as:
Direct Materials Price Variance = (Standard Price Per Gallon - Actual Price Per Gallon) × Actual Quantity Purchased.
In this case, we know that the Actual Price Per Gallon = $22,800 / 3,000 gallons = $7.60.
So, the variance is:
(8 - 7.60) × 3,000 = $0.40 × 3,000 = $1,200.
This variance is favorable, as the actual price is less than the standard price, and the company has saved money on the purchase.