The materials purchasing manager purchased 12,000 units of component K2X from a new source at a price $20 below the standard unit price of $200. These components turned out to be of extremely poor quality with defects occurring at three times the standard rate of 6%. The higher rate of defects reduced the output of workers (who earn $12 per hour) from 20 units per hour to 16 units per hour on the units containing the discount components. Each finished unit contains one K2X component. To appease the workers (who were irate at having to work with inferior components), the production manager agreed to pay the workers an additional $0.50 for each of the components (good and bad) in the discount batch. Variable manufacturing overhead is applied at the rate of $6.00 per direct labor hour. The defective units also caused a 25 hour increase in total machine hours. The actual cost of electricity to run the machines is $2.00 per hour. Effect on materials price variance:

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