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:
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)