Question

Still 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 materials: 10 pounds at $8.00 per pound............................     $80.00

Direct labor: 4 hours at $14 per hour.........................................           56.00

Variable overhead: 4 hours at $5 per hour..................................         20.00

Total standard cost per unit......................................................          $156.00

The planning budget for April was based on producing and selling 50,000 units. However, during April the company actually produced and sold 60,000 units and incurred the following costs:

Purchased 320,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.

    Direct laborers worked 220,000 hours at a rate of $15.00 per hour.

    Total variable manufacturing overhead for the month was $561,000.

Required:

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

What is the materials price variance for April?

What is the materials quantity variance for April?

Answer 1

Raw materials cost included in the company’s flexible budget for April = 60,000 units * $80 per unit = $4,800,000

Materials price variance = (Actual quantity * Actual price) - (Actual quantity * Standard price)

= (320,000 * $7.50) - (320,000 * $8)

= $2,400,000 - $2,560,000

= $160,0000 Favourable

Materials quantity variance = (Actual quantity * Standard price) - (Standard quantity * Standard price)

= (320,000 * $8) - [(60,000*10) * $8]

= $2,560,000 - $4,800,000

= $2,240,000 Favourable