Question

Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unit is as follows: Direct material: 4 pounds at $10.00 per pound $ 40.00 Direct labor: 2 hours at $16.00 per hour 32.00 Variable overhead: 2 hours at $6.00 per hour 12.00 Total standard variable cost per unit $ 84.00 The company also established the following cost formulas for its selling expenses:

Advertising: Fixed cost per month $270,000 Variable Cost per Unit Sold

Sales salaries and commissions per month $240,000 $19.00

Shipping expenses: 10.00

The planning budget for March was based on producing and selling 30,000 units. However, during March the company actually produced and sold 34,500 units and incurred the following costs:

a. Purchased 150,000 pounds of raw materials at a cost of $9.20 per pound. All of this material was used in production.
b. Direct laborers worked 62,000 hours at a rate of $17.00 per hour.
c. Total variable manufacturing overhead for the month was $390,600.

D. Total advertising, sales salaries and commissions, and shipping expenses were &280,000, $490,000, and $185,000 respectively.

What is the materials quantity variance for March?

1. What raw materials cost would be included in the company’s planning budget for March?

Raw material cost =

2. What raw materials cost would be included in the company’s flexible budget for March?

Raw material cost =

Answer 1

Material Quantity variance
Std qty allowed per unit of output	4
Actual output			34500
Std qty allowed (34500*4)		138000
Std price per unit			10
Actual Qty purchased and used		150000
Material Quantity Variance = Std price (Std qty allowed - Actual qty used)
		10 (138000-150000) = 120000 Unfav
Req 1.
Units planned to produce		30000
Multiply: Std qty allowed per unit	4
TotalStd qty allowed			120000
Multiply: Std price			10
Raw material cost in Planning budget	12,00,000
Req 2.
Units actualy produced		34500
Multiply: Std qty allowed per unit	4
TotalStd qty allowed			138000
Multiply: Std price			10
Raw material cost in Flexible budget	13,80,000