Bulluck Corporation makes a product with the following standard costs: The company reported the following results concerning this product in July.
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 July is:
A) $2,100 Unfavorable
B) $2,420 Favorable
C) $2,100 Favorable
D) $2,420 Unfavorable

Question

Bulluck Corporation makes a product with the following standard costs:  The company reported the following results concerning this product in July.
 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 July is:
A) $2,100 Unfavorable 
B) $2,420 Favorable 
C) $2,100 Favorable 
D) $2,420 Unfavorable

Quizplus · Accepted Answer

To calculate the materials price variance, we need to use the formula:

Materials price variance = (Actual price - Standard price) x Actual quantity purchased

We are given the following information for July:

Actual quantity purchased = 17,000 pounds
Actual price paid = $12.20 per pound

The standard price is given as $12.00 per pound.

Substituting the values in the formula, we get:

Materials price variance = ($12.20 - $12.00) x 17,000
                       = $340 F

Therefore, the materials price variance for July is $340 favorable. However, we need to be careful as the question is asking for the materials price variance, not the total materials variance. To get the materials price variance, we isolate the price difference between the actual and standard quantity, and this gives us a favorable variance as the actual price is lower than the standard price. Therefore, the correct answer is option D, $2,420 unfavorable.

Bulluck Corporation Makes a Product with the Following Standard Costs