Question

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:

Direct materials: 4 kg at $9.00 per kg	$	36.00
Direct labour: 3 hours at $12 per hour		36.00
Variable overhead: 3 hours at $8 per hour		24.00
Total standard cost per unit	$	96.00

The company planned to produce and sell 28,000 units in March. However, during March the company actually produced and sold 33,000 units and incurred the following costs:

1. Purchased 165,000 kg of raw materials at a cost of $7.20 per kg. All of this material was used in production.
2. Direct labour: 58,000 hours at a rate of $13 per hour.
3. Total variable manufacturing overhead for the month was $729,060.

1. What is the materials price 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.).)

Answer 1

Solution Material price 1) Variance S [SP - Ap] x AQ [9 - 7.20] x 165000 297000 (favorable)