Question

21

Puvo, Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:

	Standard Quantity			Standard Price or Rate			Standard Cost
Direct materials		1.5	pounds	$	6.00	per pound	$	9.00
Direct labor		0.6	hours	$	18.00	per hour	$	10.80
Variable manufacturing overhead		0.6	hours	$	4.25	per hour	$	2.55

During March, the following activity was recorded by the company:

• The company produced 5,400 units during the month.
• A total of 11,600 pounds of material were purchased at a cost of $32,480.
• There was no beginning inventory of materials on hand to start the month; at the end of the month, 2,320 pounds of material remained in the warehouse.
• During March, 3,440 direct labor-hours were worked at a rate of $18.50 per hour.
• Variable manufacturing overhead costs during March totaled $8,972.

The direct materials purchases variance is computed when the materials are purchased.

The materials quantity variance for March is:

Answer 1

Solution:

Standard quantity of material for actual production = 5400*1.50 = 8100 pound

Actual quantity of material used = 11600 - 2320 = 9280 pound

Standard price of material = $6 per pound

Material quantity variance = (SQ - AQ) * SP = (8100 - 9280) * $6 = $7,080 U