Question

Puvo, Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:

	Standard Quantity			Standard Price or Rate			Standard Cost
Direct materials		2.5	pounds	$	6.50	per pound	$	16.25
Direct labor		0.6	hours	$	20.00	per hour	$	12.00
Variable manufacturing overhead		0.6	hours	$	4.75	per hour	$	2.85

During March, the following activity was recorded by the company:

• The company produced 5,800 units during the month.
• A total of 18,500 pounds of material were purchased at a cost of $51,800.
• There was no beginning inventory of materials on hand to start the month; at the end of the month, 3,700 pounds of material remained in the warehouse.
• During March, 3,680 direct labor-hours were worked at a rate of $20.50 per hour.
• Variable manufacturing overhead costs during March totaled $10,688.

The direct materials purchases variance is computed when the materials are purchased.

The materials quantity variance for March is:

a. $1,950 F

b. $29,300 F

c. $29,300 U

d. $1,950 U

Answer 1

Ans.	Option D $1,950 U
	*Materials quantity variance is calculated using actual quantity used. So first of all, we need
	to calculate this.
	Actual quantity used = Acutal quantity purchased - Actual quantity in ending inventory
	18,500 - 3,700   =   14,800   pounds
	*Now we are required to calculate the standard quantity of materials allowed.
	*Standard quantity = Actual output * Standard quantity per unit of output
	5,800 * 2.5 pounds
	14,500 pounds
	Materials usage variance = (Standard quantity - Actual quantity used) * Standard price
	(14,500 - 14,800) * $6.50
	-300 * $6.50
	-$1,950	or   $1,950 unfavorable