The Typed answer below my work reveals the process to get the answer.

How do I know to subtract 64,925 (purchase costs) from $66,250 (Material costs) given the equation Material Price Variance = (Std. Price - Actual Price) x Actual Quantity??

*I circled number that confuses me, why do we use it?

Krane Company has a standard costing system and keeps all its costs up to date. The company's main product is beach towels which are made in a single department. The standard variable costs for one beach towel (unit) are as follows: Direct materials (3 yards at $1.00 per yard) Direct labor (1/2 hour at $9.00 per hour) $ 3.00 $ 4.50 Variable overhead (1/2 hour @ $5.00 per direct labor hour) $ 2.50 The company's normal capacity is 10,000 direct labor hours. Its budgeted fixed overhead costs for the year were $24,000. During the year, it produced and sold 22,000 beach towels and it purchased and used 66,250 yards of direct materials; the purchase cost was $64,925. The average labor rate was $9.10 per hour, and 10,900 direct labor hours were worked. The company's actual variable overhead costs for the year were $55,045, and its fixed costs were $24,500. What are the material, labor, and overhead variances? 6478 750 35000 two month s Budgeted Collects 5703, 100Materia Price : Varionces (SP- AP ) AQ (1 00 kid - AP /yd ) . 66, 25 0 yd Sted Quantity : 3 yd . 22,000 towels = 66000). Towel Exam 3 Study Guide Part B Page | 2 Chapter 6 Part B MATERIALS VARIANCES Standard quantity: 3 YD/towel x 22,000 towels = 66,000 YD Price Variance: (SP - AP) x AQ (1.00 - AP) x 66,250 = $66,250 ( $64,925) = $1,325.0OF Quantity Variance: (SQ - AQ) x SP (66,000 - 66,250) x 1.00 = $250.00U ARIANCES