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: $ 0.00 Direct material: 5 pounds at $8.00 per pound Direct labort 3 hours at $15 per hour Variable overhead: 3 hours at 59 per hour Total standard variable cost per unit The company also established the following cost formulas for its selling expenses. Variable Cost per Unit Sold Advertising Sales salaries and commissions Shipping expenses Fixed Cost per Month $ 350,000 $ 400, $ 27.00 The planning budget for March was based on producing and selling 21.000 units. However, during March the company actually produced and sold 26,000 units and incurred the following costs: a. Purchased 160.000 pounds of raw materials at a cost of $6.50 per pound. All of this material was used in production b. Direct-laborers worked 70,000 hours at a rate of $16.00 per hour c. Total variable manufacturing overhead for the month was $655,200. d. Total advertising, sales salaries and commissions, and shipping expenses were $358,000 $530,000, and $265.000, respectively Required: 1. What raw materials cost would be included in the company's flexible budget for March?

Answer 1

1) Raw materials cost would be included in flexible budget for March
                = Units actually Produced x Budgeted Rate
                = 26,000 units x $40
                = $1,040,000

2)

Material Quantity Variance for March = (Actual Quantity Used - Standard quantity Used) x Standard Price
                                                           = {160,000 - (5 pounds x 26,000 units) } x $ 8
                                                           = 30,000 x $8
                                                           = $240,000 Unfavorable or $240,000 U

4) As Material Quantity Variance is depend on actual quantity used, standard quantity used and standard price, not on quantity purchased and purchase rates. Here quantity purchased in same as in previous condition so Material Quantity Variance will be same as calculated above ( $240,000 Unfavorable)

hence Material Quantity Variance for March in this condition = $240,000 U