$2,820 favorable
Calculation to determine direct materials quantity variance
Using this formula:
Direct materials price variance = (Actual materials cost per lb. - Standard materials cost per lb.) × Actual quantity lb
Direct materials price variance = ($5.40 - $6.00) × 4,700 lbs.
Direct materials price variance = (-$0.60) × 4,700 lbs.
Direct materials price variance = $2,820 favorable
Therefore the direct materials price variance is $2,820 favorable.
Direct material costs:
are the costs of raw materials or parts that go directly into producing products. For example, if Company A is a toy manufacturer, an example of a direct material cost would be the plastic used to make the toys.
Why is direct materials important?
Direct materials is an important concept in throughput analysis, where throughput is the revenue generated by a product sale, less all totally variable costs. In most situations, the only totally variable costs associated with a product are its direct materials.
What do you mean by actual cost?
In accounting, Actual Cost refers to the amount of money that was paid to acquire a product or asset. This could be the historical, past, or present-day cost of the product
What do you mean by standard cost?
A standard cost is the budgeted cost of a regular manufacturing process against which actual costs are compared. Of course, if a new product, service, or process is to be carried out, the initial standard costs will have to be estimated.
Learn more about direct costs:
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