Question

Gilson Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During April, the company budgeted for 5,100 units, but its actual level of activity was 5,060 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for April:
Data used in budgeting:

Fixed element per month Variable element per unit
Revenue - $35.90
Direct labor $0 $7.80
Direct materials 0 10.10
Manufacturing overhead 38,500 1.90
Selling and administrative expenses 21,000 0.40
Total expenses $59,600 $20.20
Actual results for April:

Revenue $179,164
Direct labor $41,248
Direct materials $49,086
Manufacturing overhead $48,544
Selling and administrative expenses $22,354

The spending variance for direct materials in April would be closest to:

a) $2,020 F
b) $2,202 U
c) $2,424 F
d) $2,424 U

Answer 1

Answer:

a. $2,020 Favorable

Explanation:

The computation of spending variance for direct materials in April is shown below:-

For computing the spending variance for direct materials in April first we need to find out the actual price per unit which is here below:-

Actual price per unit = Actual direct material ÷ Actual units purchased

= $49,086 ÷ $5,060

= $9.70

Spending variance for direct materials in April = (Actual price per unit - Standard price per unit) × Actual quantity

= ($9.70 - $10.10) × 5,060

= -$0.4 × 5,060

= $2,024 Favorable

which is closest to $2,020 Favorable.