A company has established 4 pounds of Material J at $2 per pound as the standard for the material in its Product Z. The company has just produced 1,500 units of this product, using 6,200 pounds of Material J that cost $11,380. The direct materials price variance is:

Materials price variance=1020.024

Materials price variance is 1020.024 is positive so we call it favourable.

Explanation:

The formula for Direct materials price variance:

Materials price variance=Actual Quantity (Standard Price-Actual Price)

Actual Quantity=6200

Actual Price=Cost of material/Actual Quantity

Actual Price=11380/6200

Actual Price=$1.83548

Standard Price=$2

Materials price variance=6200 (2-1.83548)

Materials price variance=1020.024

Materials price variance is 1020.024 is positive so we call it favourable.

Favourable variance means that material is bought at the price less than standard rate.