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Milar Corporation makes a product with the following standard costs:

Standard Quantity or Hours Standard Price or Rate
Direct materials 7.7 pounds $ 4 per pound
Direct labor 0.1 hours $ 20 per hour
Variable overhead 0.1 hours $ 4 per hour


In January the company produced 2,000 units using 16,060 pounds of the direct material and 210 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable overhead cost was $756. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The materials price variance for January is:

a. $1,690 U
b. $1,540 F
c. $1,540 U
d. $1,690 F

1 Answer

3 votes

Answer:

Direct material price variance= $1,690 favorable

Step-by-step explanation:

Giving the following information:

Direct materials 7.7 pounds $ 4 per pound

During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910.

To calculate the direct material price variance, we need to use the following formula:

Direct material price variance= (standard price - actual price)*actual quantity

actual price= 65,910/16,900= $3.9

Direct material price variance= (4 - 3.9)*16,900

Direct material price variance= $1,690 favorable

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