Question

Ultration of 6 (The following information applies to the questions displayed below.) Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labour-hours, and its standard costs per unit are as follows: 53:01 Direct materials: 5 kg at $9.00 per kg Direct labour: 3 hours at $14 per hour Variable overhead: 3 hours at $9 per hour $ 45.00 42.00 27.00 t Total standard cost per unit $ 114.00 The company planned to produce and sell 20,000 units in March. However, during March the company actually produced and sold 24,800 units and incurred the following costs: a. Purchased 155,000 kg of raw materials at a cost of $7.20 per kg. All of this material was used in production b. Direct labour: 65,000 hours at a rate of $15 per hour. c. Total variable manufacturing overhead for the month was $612,300. 2. What is the materials quantity variance for March? (Indicate the effect of each variance by selecting "F* for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).) Materials quantity variance

Answer 1

Solution

Preble Company

Materials quantity variance for March –

SP refers to standard price

AP refers to actual price

AQ refers to actual quantity

Given information:

Standard price per unit = 5 Kg @ $9 per Kg =$45

Actual price per unit = 5 Kg @ $7.20 per kg = $36

Standard quantity = actually produced and sold units x number of kg required to produce one unit

                                    = 24,800 x 5 = 124,000 Kg

Actual quantity           = 155,000 Kg

If Preble company purchased 155,000 kg of material at $7.20 per kg and used all of the material in production, computation of material quantity variance for the month of March:

Direct material quantity variance:

Direct material quantity variance = SP x (SQ-AQ)

            SP = $9 per kg

SQ = 24,800 units x 5kg = 124,000 kg

AQ = 155,000 kg

Direct material quantity variance = $9 x (124,000-155,000) = $279,000 (U)