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		0.5	hours	$	13.00	per hour
Variable overhead		0.5	hours	$	7.00	per hour

In January the company produced 4,500 units using 10,110 pounds of the direct material and 2,090 direct labor-hours. During the month, the company purchased 10,680 pounds of the direct material at a cost of $76,560. The actual direct labor cost was $38,257 and the actual variable overhead cost was $11,958.

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

• $1,660 F

• $1,800 U

• $1,660 U

• $1,800 F

Answer 1

Materials Price Variance = (SP - AP) * AQ

= (7 - 76560/10680) * 10680

= (7 - 7.17) * 10680

= 1,800 U

Option B