Question

In January the company produced 4,400 units using 10,180 pounds of the direct material and 2,160 direct labor-hours. During the month, the company purchased 10,750 pounds of the direct material at a cost of $76,630. The actual direct labor cost was $38,250 and the actual variable overhead cost was $11,951. 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

The question is in complete (the tutor added $8 as standard material price)

In January the company produced 4,400 units using 10,180 pounds of the direct material and 2,160 direct labor-hours. During the month, the company purchased 10,750 pounds of the direct material at a cost of $76,630. The actual direct labor cost was $38,250 and the actual variable overhead cost was $11,951. 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:

Assuming a standard material price of $8 per pound

(Note this was added by the tutor)

Answer:

Price variance   $9,370 Favorable

Explanation:

Material price variance

A material price variance occurs where materials are purchased at a price either lower or higher than the standard price. A favorable variance is recorded where the actual total cost of materials is lower that the standard cost. While an adverse variance implies the opposite

                                                                                                       $

10750 pounds should have cost (10,750 × $8)                     86,000

but did cost (actual cost                                                          76,630

Price variance                                                                          9,370 Favorable