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		1.6	hours	$	14.00	per hour
Variable overhead		1.6	hours	$	2.00	per hour

In January the company produced 4,600 units using 10,220 pounds of the direct material and 2,200 direct labor-hours. During the month, the company purchased 10,790 pounds of the direct material at a cost of $76,670. The actual direct labor cost was $38,246 and the actual variable overhead cost was $11,947.

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:

Multiple Choice

• $1,000 U

• $1,140 F

• $1,140 U

• $1,000 F

Answer 1

Material price variance = (Actual price per pound - Standard price per pound) x Actual quantity of materials purchased

=> Material price variance = ($7.10565 per pound - $7 per pound) x 10,790 pounds

=> Material price variance = $1,140 U

Hence, the third option is the correct answer.

Calculation of actual price per pound:

Actual price per pound = Actual cost of materials purchased / Actual quantity of materials purchased

=> Actual price per pound = $76,670 / 10,790 pounds = $7.10565 per pound

answered by: anonymous