Questions: The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of product are as follows: Standard Costs Direct materials 1,040 kilograms at 8.64 Actual Costs Direct materials 2,500 kilograms at 8.05 The direct materials price variance is a. 1,475 favorable b. 614 favorable c. 614 unfavorable d. 1,475 unfavorable

The answer is the first one (a): \$1,475 favorable.

To calculate the direct materials price variance, we use the formula:

\[ \text{Direct Materials Price Variance} = (\text{Actual Quantity} \times \text{Standard Price}) - (\text{Actual Quantity} \times \text{Actual Price}) \]

Given:

• Actual Quantity = 2,500 kilograms
• Standard Price = \$8.64 per kilogram
• Actual Price = \$8.05 per kilogram

Substitute the values into the formula:

\[ \text{Direct Materials Price Variance} = (2,500 \times 8.64) - (2,500 \times 8.05) \]

\[ = 21,600 - 20,125 \]

\[ = 1,475 \]

Since the actual cost is less than the standard cost, the variance is favorable.

Explanation for each option: a. \$1,475 favorable - Correct, as calculated above. b. \$614 favorable - Incorrect, the calculation shows a \$1,475 favorable variance. c. \$614 unfavorable - Incorrect, both the amount and the direction of the variance are wrong. d. \$1,475 unfavorable - Incorrect, the variance is favorable, not unfavorable.

In summary, the direct materials price variance is \$1,475 favorable.