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:
Direct material: 5 pounds at $8.00 per pound $40.00 Direct labor: 2 hours at $14 per hour28.00 Variable overhead: 2 hours at $5 per hour 10.00 Total standard variable cost per unit $78.00.The company also established the following cost formulas for its selling expenses:Fixed Cost per Month Variable Cost per Unit Sold Advertising $200,000 Sales salaries and commissions$100,000 $12.00Shipping expenses $3.00 The planning budget for March was based on producing and selling 25,000 units. However, during March the company actually produced and sold 30,000 units and incurred the following costs:Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production. Direct-laborers worked 55,000 hours at a rate of $15.00 per hour. Total variable manufacturing overhead for the month was $280,500. Total advertising, sales salaries and commissions, and shipping expenses were $210,000, $455,000, and $115,000, respectively.
1. What raw materials cost would be included in the company's flexible budget from March?
2. What is the raw materials quantity variance from March?

Answer 1

Answer:

1. $1,200,000

2. -$80,000 U

Explanation:

1. What raw materials cost would be included in the company's flexible budget from March.

= Units produced and sold × Direct materials

= 30,000 units × 5 pounds × $8 per pound

= $1,200,000

2. What is the raw materials quantity variance from March.

=(Standard quantity for actual production - Actual quantity for actual production) × Standard price.

Standard quantity = 5 pounds × 30,000 units = 150,000 units

Actual quantity = 160,000 units

Standard price = 8

= (150,000 - 160,000) × $8

= -$80,000 U