ECONOMICS

Detailed explanation-1: -During the year that follows, ABC only buys 25, 000 pounds, which drives up the price to $12.50 per pound. This creates a direct material price variance of $2.50 per pound, and a variance of $62, 500 for all of the 25, 000 pounds that ABC purchases.

Detailed explanation-2: -Hence material price variance is the difference between standard price and actual price multiplied by actual quantity.

Detailed explanation-3: -When a company makes a product and compares the actual materials cost to the standard materials cost, the result is the total direct materials cost variance. An unfavorable outcome means the actual costs related to materials were more than the expected (standard) costs.

Detailed explanation-4: -Example of Materials Usage Variance If the company actually used 530 pounds of materials, the materials usage variance will be $90 unfavorable (30 additional pounds of materials X the standard cost per pound of $3).