Question

Milar Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		2.0	pounds	$	7.00	per pound
Direct labor		1.4	hours	$	16.00	per hour
Variable overhead		1.4	hours	$	4.00	per hour

In January the company produced 4,400 units using 10,200 pounds of the direct material and 2,180 direct labor-hours. During the month, the company purchased 10,770 pounds of the direct material at a cost of $76,650. The actual direct labor cost was $38,248 and the actual variable overhead cost was $11,949.

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:

Answer 1

Answer:

Material Purchase variance and Material Price variance are different. Generally purchase variances are computed at the time materials are purchased.

Materials price variance deals with change of rate for the actual quantity used whereas purchase variance deals with change of rate for the actual quantity purchased.

Actual Price of Material purchased per pound = Total Material cost / Total no. of pounds purchased

                                                                                  = $76,650 / 10,770 pounds

                                                                                  = $7.117

Material Price Variance for January

Actual Quantity for 4,400 units = 10,200 pounds

Material Price Variance = (Actual Quantity * Standard Price) - (Actual Quantity * Actual Price)

                                          = (10,200 pounds * $7 per pound) - (10,200 pounds * $7.117 per pound)

                                         = $71,400 - $72,593

                                         = ($1,193)

                                         = $1,193 Unfavorable