Gipple Corporation makes a product that uses a material with the quantity standard of 7.8 grams per unit of output and the price standard of $6.50 per gram. In January the company produced 3,900 units using 25,370 grams of the direct material. During the month the company purchased 27,900 grams of the direct material at $6.70 per gram. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for January is: Multiple Choice a. $6,084 F b. $5,580 U c. $6,084 U d. $5,580 F

The correct answer is B.

Explanation:

Giving the following information:

Standard quantity= 7.8 grams per unit of output

Standard price= $6.50 per gram.

During the month the company purchased 27,900 grams of the direct material at $6.70 per gram.

To calculate the material price variance, we need to use the following formula:

Direct material price variance= (standard price - actual price)*actual quantity

Direct material price variance= (6.5 - 6.7)*27,900

Direct material price variance= $5,580 unfavorable.

It is unfavorable because the actual price was higher than estimated.

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