Complete Question:
Squeaky Clean produces commercial strength cleansing supplies. Two of its main products are window cleanser that uses ammonia, and floor cleanser that uses bleach. Information for the most recent period follows:
Product Names Window Cleaner Floor Cleaner
(ammonia) (bleach)
Direct materials information
Standard ounces per unit 16 oz. 24 oz.
Standard price (SP) per ounce $ 0.25 ?
Actual quantity (AQ) used per unit 20 oz. 22 oz.
Actual price (AP) paid for material $ 1.75 $ 0.72
Actual quantity purchased (AQP) / used 1,000 oz. 2,800 oz.
Price variance ? $ 56 U
Quantity variance $4,900 U ?
Flexible budget variance ? $ 504 F
Number of units produced 700 400
What is the direct materials flexible budget variance for ammonia?
A.$6,400 favorable
B.$6,400 unfavorable
C.$3,400 unfavorable
D.$3,400 favorable
Answer:
<h2>Squeaky Clean</h2>
The Direct Materials Flexible Budget Variance for ammonia is:
B. $6,400 unfavorable
Explanation:
1. Data and Calculations:
Actual quantity purchased = 1,000 oz
Actual price = $1.75
Standard price = $0.25
2. Direct Material Price Variance
= Actual Material Purchased (Actual Rate - Standard Rate)
= 1,000 * ($1.75 - $0.25)
= $1,500 (Unfavorable)
3. Direct Materials Quantity Variance is given as $4,900 Unfavorable.
4. Therefore, the Direct Material Flexible Budget Variance will be equal to the Direct Material Price Variance + the Direct Material Quantity Variance
Flexible Budget Variance for Ammonia
= $1,500 (U) + $4,900 (U)
= $6,400 (Unfavorable)
4. A flexible budget changes or flexes with the actual volume or level of activity. It is not like a static budget that remains static no matter the level of activity. With a flexible budget, the performance of managers can be judged more accurately because their performances are evaluated based on actual volumes or levels of activity.
