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:

Multiple Choice

$1,950 F

$29,300 F

$29,300 U

$1,950 U

Answer 1

Standard direct materials for actual production = Actual production units * Standard quantity of materials per unit = 5,800 units * 2.5 pounds = 14,500 pounds

Actual direct materials used in the production = Materials purchased - Ending inventory = 18,500 pounds - 3,700 pounds = 14,800 pounds

Materials quantity variance = [ Standard quantity of materials - Actual quantity of materials ] * Standard rate = [ 14,500 pounds - 14,800 pounds ] * $6.5 = $1,950 U [ 4th option ]