What is the direct materials price variance for 6,800 pounds of material if the actual cost is $50.25 per pound and the standard cost is $56.00 per pound?

To determine the direct materials price variance, it’s essential to understand the formula:

Direct Materials Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased

In this case, the actual price per pound of the material is $50.25, while the standard price is $56.00. The quantity purchased is 6,800 pounds.

First, calculate the difference between the actual price and the standard price:

Actual Price - Standard Price = $50.25 - $56.00 = -$5.75

Next, multiply this difference by the actual quantity purchased:

Direct Materials Price Variance = (-$5.75) x 6,800 pounds = -$39,100

Since the result is negative, it indicates a variance that is favorable because it suggests that the company paid less for the materials than the standard cost set. In this case, a lower actual cost implies potential savings.

Thus, the correct interpretation of this variance is that it is $39,100 favorable, confirming that the actual expenditure on materials was less than what was expected, resulting in a positive impact on the company’s finances.