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 1.3 hours $ 17.00 per hour Variable overhead 1.3 hours $ 5.00 per hour In January the company produced 4,500 units using 10,190 pounds of the direct material and 2,170 direct labor-hours. During the month, the company purchased 10,760 pounds of the direct material at a cost of $76,640. The actual direct labor cost was $38,249 and the actual variable overhead cost was $11,950. 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

The direct material variance is the difference between the standard cost of materials resulting from production activities and the actual costs incurred. The direct material variance is comprised of two other variances, which are:

- Purchase price variance

- Material yield variance

Purchase price variance. The difference for an item or service between the amount per unit actually paid and the budgeted amount per unit multiplied by the number of units bought.

Purchase price variance=(actual price - standard price)*actual units bought

In this exercise:

Standard price= $13,5 pound

Actual units=10760

Actual price=76640/10760= $7,12

Purchase price variance=(7,12-13,5)*10760=$68648,8 favorable