Gipple Corporation makes a product that uses a material with the quantity standard of 8.3 grams per unit of output and the price standard of $7.00 per gram. In January the company produced 4,400 units using 25,870 grams of the direct material. During the month the company purchased 28,400 grams of the direct material at $7.20 per gram. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for January is:

Material price variance  =$5,680 unfavorable

Explanation:

Material price variance

A material price variance occurs where materials are purchased at a price either lower or higher than the standard price. A favorable variance is recorded where the actual total cost of materials is lower that the standard cost. While an adverse variance implies the opposite.

Standard material cost of 2                                                       $

28,400 grams should have cost (28,400×$7.00 )   =     198,800    

but did cost - i.e actual cost     (28,400×$7.20            =      204,480

Material price variance                                                       5680 Unfavorable