Slick Corporation is a small producer of synthetic motor oil. During May, the co

Question

Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains twelve quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $21,002. It also incurred average direct labor costs of $14 per hour for the 4,252 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,488, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows:

  Direct materials standard price

$

1.30

per gallon

  Standard quantity allowed per case

3.25

gallons

  Direct labor standard rate

$

16

per hour

  Standard hours allowed per case

0.75

direct labor hours

  Fixed overhead budgeted

$

2,600

per month

  Normal level of production

5,200

cases per month

  Variable overhead application rate

$

1.50

per case

  Fixed overhead application rate ($2,600

Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains twelve quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $21,002. It also incurred average direct labor costs of $14 per hour for the 4,252 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,488, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows:

Explanation / Answer

1 quarts = 0.25 gallon

Standard Quantity at Standard Price (SQSP) = 5000 x 12 x 0.25 x 1.3 = $19500

Actual Quantity at Standard Price (AQSP) = 16500 x 1.3 = $21450

Actual Quantity at Actual Price (AQAP) = $21165

Material Price Variance = AQSP - AQAP = 21450 - 21165 = $285 F

Material Quantity Variance = SQSP - AQSP = 19500 - 21450 = $1950 U

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