Max Company has developed the following standards for one of its products. The following activity occurred during the month of October:
The company records materials price variances at the time of purchase. The direct materials price variance is
A) $50,000 F.
B) $50,000 U.
C) $10,000 U.
D) $10,000 F.

Question

Max Company has developed the following standards for one of its products.  The following activity occurred during the month of October:
 The company records materials price variances at the time of purchase. The direct materials price variance is
A) $50,000 F. 
B) $50,000 U. 
C) $10,000 U. 
D) $10,000 F.

Quizplus · Accepted Answer

To calculate the direct materials price variance, we need to compare the actual price paid for materials with the standard price. 
Actual price = $900,000 / 18,000 units = $50 per unit
Standard price = $45 per unit

Direct materials price variance = (actual price - standard price) x actual quantity purchased 
= ($50 - $45) x 18,000 
= $90,000 U

Since the company records materials price variances at the time of purchase, this variance has already been recorded in the accounting system. Therefore, there is no need to calculate it again. The correct choice is the closest option to the actual variance, which is C: $10,000 U.

Max Company Has Developed the Following Standards for One of Its