The following standards have been established for a raw material used to make product O84: Standard quantity of the material per unit of output 8.9 meters Standard price of the material $ 19.00 per meter The following data pertain to a recent month's operations: Actual material purchased 5,300 meters Actual cost of material purchased $ 104,520 Actual material used in production 5,100 meters Actual output 680 units of product O84 The direct materials purchases variance is computed when the materials are purchased. What is the materials price variance for the month

Purchase price variance = (19,72-19) * 596=$429,12

Explanation:

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: This is the difference between the standard and actual cost per unit of the direct materials purchased, multiplied by the standard number of units expected to be used in the production process. This variance is the responsibility of the purchasing department.

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

In this exercise:

Standard price = $19 meter

Standard units=5300/8,9=596 units

Actual price=104520/5300 = $19,72

Purchase price variance = (19,72-19) * 596=$429,12