The Collins Corporation uses standard costing and has established the following direct material and direct labor standards for each unit of the single product it makes:

• Direct materials: 4 gallons at $8 per gallon
• Direct labor: 1 hour at $16 per hour

During July, the company made 6,000 units of product and incurred the following costs:

• Direct materials purchased: 26,800 gallons at $8.20 per gallon
• Direct materials used: 25,200 gallons
• Direct labor used: 5,600 hours at $15.30 per hour

The direct materials purchases variance is computed when the materials are purchased.

-The materials price variance for July was:
A)$5,360 Favorable
B)$5,360 Unfavorable
C)$5,040 Favorable
D)$5,040 Unfavorable

Question

The Collins Corporation uses standard costing and has established the following direct material and direct labor standards for each unit of the single product it makes:

• Direct materials: 4 gallons at $8 per gallon
• Direct labor: 1 hour at $16 per hour

During July, the company made 6,000 units of product and incurred the following costs:

• Direct materials purchased: 26,800 gallons at $8.20 per gallon
• Direct materials used: 25,200 gallons
• Direct labor used: 5,600 hours at $15.30 per hour

The direct materials purchases variance is computed when the materials are purchased.

-The materials price variance for July was:
A)$5,360 Favorable
B)$5,360 Unfavorable
C)$5,040 Favorable
D)$5,040 Unfavorable

Quizplus · Accepted Answer

The question does not provide information on the budgeted or standard cost of materials, so we cannot calculate the actual materials cost. However, we can calculate the materials price variance by comparing the actual cost per unit of materials used to the expected cost per unit. Since the question gives us a materials price variance but not the actual cost, we can assume that the expected cost was $0 and the variance represents the difference between the actual cost and $0. If the materials price variance is unfavorable, it means that the actual cost per unit was higher than expected (i.e. the company paid more for the materials than it should have). Therefore, the answer is B, $5,360 Unfavorable.

The Collins Corporation Uses Standard Costing and Has Established the Following