Question

Garry's Corporation's most recent production budget indicates the following required production:

	October	November	December
Required Production (units)	210,000	175,000	110,000

Each unit of a finished product requires 5 pounds of raw materials. The company maintains raw materials inventory equal to 25% of the next month's expected production needs. How many pounds of raw material should Garry plan on purchasing for the month of November?

39) Magno Cereal Corporation uses a standard cost system for its "crunchy pickle" cereal. The materials standard for each batch of cereal produced is 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the month of August, Magno purchased 78,000 pounds of pickles at a total cost of $253,500. Magno used all of these pickles to produce 60,000 batches of cereal. What is Magno's materials quantity variance for August? 

A) $1,500 Unfavorable B) $18,000 Favorable C) $19,500 Unfavorable D) $54,000 Unfavorable 

Answer 1

Question - (1) ............ (b) ..... 793,750

Production	175000
Raw material needed / Unit	5
RM for NOV production	875000
(+) Desired ending Inventory	137500
(-) Available Beginning Inventory	218750
Planned purchases for NOV	793750

Desired Ending Inventory = 110,000 Units of Dec production * 5 pounds per Unit * 25%

Available Beginning Inventory = 875000 * 0.25 = 137500

Question - (2) ............(b) ........ 18000 Favorable

Materials Quantity variance = SR * ( AQ - SQ)

= 3 * ( 78000 - 84000 )

= 18000 Favorable

SR = Standard rate = $3

AQ = Actual Quantity = 78000 pounds

SQ = Standard Quantity = 60000 batches * 1.40 per batch = 84000 pounds

Answer 2

A	B	C	D	E	F	G	H	I	J	K
2
3		Direct material amount to be purchased can be calculated as follows:
4		Direct material amount to be purchased	= Amount required for production + Ending Inventory Required - Beginning Inventory
5
6		Direct Materials Purchase Budget		Oct	Nov	Dec
7		Units to be produced		210000	175000	110000
8		Amount of materials required for production (Pound)	5	1050000	875000	550000
9		Desired Ending Inventory of Material	25%	218,750.00	137,500.00
10		Total Material needed			1,012,500.00
11		Less Beginning Inventory			218,750.00
12		Total Material needed to be purchased			793,750.00
13		Note: Last period ending inventory will be current period beginning inventory.
14
15		Hence
16		Total material required is	793,750.00
17
18

Formula sheet

A	B	C	D	E	F	G	H	I	J	K
2
3		Direct material amount to be purchased can be calculated as follows:
4		Direct material amount to be purchased	= Amount required for production + Ending Inventory Required - Beginning Inventory
5
6		Direct Materials Purchase Budget		Oct	Nov	Dec
7		Units to be produced		210000	175000	110000
8		Amount of materials required for production (Pound)	5	=E7*$D$8	=F7*$D$8	=G7*$D$8
9		Desired Ending Inventory of Material	0.25	=F8*$D$9	=G8*$D$9
10		Total Material needed			=SUM(F8:F9)
11		Less Beginning Inventory			=E9
12		Total Material needed to be purchased			=F10-F11
13		Note: Last period ending inventory will be current period beginning inventory.
14
15		Hence
16		Total material required is	=F12
17
18