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 7,300 units, but its actual level of activity was 7,250 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		-		$	34.80
Direct labor	$	0		$	6.80
Direct materials		0			13.30
Manufacturing overhead		30,000			2.30
Selling and administrative expenses		26,100			0.80
Total expenses	$	56,100		$	23.20

Actual results for May:

Revenue	$	253,600
Direct labor	$	48,970
Direct materials	$	98,250
Manufacturing overhead	$	46,500
Selling and administrative expenses	$	30,530

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

Answer 1

Correct answer--------------$1,825 Unfavorable

Working

	Units (A)	Fixed cost (B)	Variable cost per unit (C )	Standard cost (D=(A x C) +B)	E= Actual amounts	F=(D-E)Difference
Direct material	7250	$               -	$        13.30	$     96,425.00	$    98,250.00	$     (1,825.00)