The Collins Corporation uses standard costing and has established the following

Question

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: $5,360 Favorable $5,360 Unfavorable $5,040 Favorable $5,040 Unfavorable

Explanation / Answer

Material Price Variance

= (Actual Price – standard price) x material purchased

= ($8.20/gallon - $8/gallon) x 26800 gallons

= $5360 Unfavourable

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