Max Company has developed the following standards for one of its products. The company records materials price variances at the time of purchase.
The direct materials price variance is
A) $50,000 favorable.
B) $50,000 unfavorable.
C) $10,000 unfavorable.
D) $10,000 favorable.

Question

Max Company has developed the following standards for one of its products.  The company records materials price variances at the time of purchase.
The direct materials price variance is
A) $50,000 favorable. 
B) $50,000 unfavorable. 
C) $10,000 unfavorable. 
D) $10,000 favorable.

Quizplus · Accepted Answer

To calculate the direct materials price variance, we need to compare the actual price paid for materials with the standard price. The standard price is given as $10 per pound, and the actual price paid is $12 per pound (6,000 pounds at $12 per pound = $72,000). Therefore, the direct materials price variance is unfavorable (costing more than the standard) and is calculated as follows: 
Direct materials price variance = (Actual price - Standard price) x Actual quantity 
Direct materials price variance = ($12 - $10) x 6,000 
Direct materials price variance = $2 x 6,000 
Direct materials price variance = $12,000 
So the correct answer is option C, which represents a direct materials price variance of $10,000 unfavorable.

Max Company Has Developed the Following Standards for One of Its