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	1.1 hours	$19.00 per hour
Variable overhead	1.1 hours	$ 7.00 per hour

In January the company produced 4.800 units using 10,170 pounds of the direct material and 2.150 direct labor-hours. During the month, the company purchased 10,740 pounds of the direct material at a cost of $76.620. The actual direct labor cost was $38,251 and the actual variable overhead cost was $11,952. 

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

Given,

Standard price of direct materials= $7 per pound

Actual price of direct materials= $76,620/10,740 pounds= $7.134 per pound

Actual quantity of direct material purchased= 10,740 pounds

Material price variance for January= (Actual price of material-standard price of material)*actual quantity purchased

= (7.134-7)*10740

= $1439.16 U

= $1440 U

As the actual purchase price of materials is greater than the standard price of material the resultant variance is unfavourable.

Answer: $1440 U (Option A)