Milar Corporation makes a product with the following standard costs: In January the company produced 4,600 units using 10,120 pounds of the direct material and 2,100 direct labor-hours. During the month, the company purchased 10,690 pounds of the direct material at a cost of $76,570. The actual direct labor cost was $38,256 and the actual variable overhead cost was $11,957.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) $1,600 Unfavorable
B) $1,740 Favorable
C) $1,740 Unfavorable
D) $1,600 Favorable

Question

Milar Corporation makes a product with the following standard costs:  In January the company produced 4,600 units using 10,120 pounds of the direct material and 2,100 direct labor-hours. During the month, the company purchased 10,690 pounds of the direct material at a cost of $76,570. The actual direct labor cost was $38,256 and the actual variable overhead cost was $11,957.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) $1,600 Unfavorable 
B) $1,740 Favorable 
C) $1,740 Unfavorable 
D) $1,600 Favorable

Quizplus · Accepted Answer

To calculate the materials price variance, we need to compare the actual price paid for materials with the standard cost of materials. The actual price paid was $76,570 for 10,690 pounds, or $7.17 per pound. The standard cost of materials is $6.80 per pound. Therefore, the materials price variance is:

(Actual Quantity Purchased x Actual Price) - (Actual Quantity Purchased x Standard Price)
= (10,690 x $7.17) - (10,690 x $6.80)
= $76,848.30 - $72,952
= $3,896.30 unfavorable

So the answer is C, $1,740 Unfavorable.

Milar Corporation Makes a Product with the Following Standard Costs