Question

Piechocki Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During May, the company budgeted for 6,900 units, but its actual level of activity was 6,850 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for May:

Data used in budgeting:

	Fixed element per month			Variable element per unit
Revenue		-		$	34.40
Direct labor	$	0		$	6.40
Direct materials		0			14.00
Manufacturing overhead		39,000			1.90
Selling and administrative expenses		25,700			4.00
Total expenses	$	64,700		$	26.30

Actual results for May:

Revenue	$	236,700
Direct labor	$	43,370
Direct materials	$	96,930
Manufacturing overhead	$	44,500
Selling and administrative expenses	$	30,490

The spending variance for direct materials in May would be closest to:

Multiple Choice

$1,030 F

$1,030 U

$330 U

$330 F

Answer 1

Actual output = 6,850 units

Actual cost of direct materials = $96,930

Standard direct materials cost per unit = $14

Standard direct material cost for actual output = Actual output * standard direct materials cost per unit = 6,850 units * $14 = $95,900

Direct material spending variance = Standard cost - Actual cost = $95,900 - $96,930 = $1,030 U

As the actual cost is more than standard cost, the variance is unfavorable.

So, the answer is $1,030 U [ option 2 ]