The Collins Corporation uses standard costing and has established the following direct material and direct labor standards for each unit of the single product it makes: • Direct materials: 4 gallons at $8 per gallon
• Direct labor: 1 hour at $16 per hour
During July, the company made 6,000 units of product and incurred the following costs:
• Direct materials purchased: 26,800 gallons at $8.20 per gallon
• Direct materials used: 25,200 gallons
• Direct labor used: 5,600 hours at $15.30 per hour
The direct materials purchases variance is computed when the materials are purchased.
The materials price variance for July was:
A)$5,360 Favorable
B)$5,360 Unfavorable
C)$5,040 Favorable
D)$5,040 Unfavorable

Question

Quizplus · Accepted Answer

The materials price variance is calculated as follows:

Actual Quantity Purchased (AQ) x (Actual Price (AP) – Standard Price (SP))

AQ = 26,800 gallons (given)
AP = $8.20 per gallon (given)

To find the standard price, use the formula:

Standard Cost (SC) / Standard Quantity (SQ)

SC = 4 gallons x $8 per gallon = $32
SQ = 1 unit

Therefore, SP = $32 per unit

Plugging in the values:

AQ x (AP – SP) = 26,800 x ($8.20 - $32) = 26,800 x (-$23.80) = -$637,840

Since the actual price is higher than the standard price, the variance is unfavorable.

Therefore, the answer is B) $5,360 Unfavorable.

The Collins Corporation Uses Standard Costing and Has Established the Following