Pardoe, Inc., manufactures a single product in which variable manufacturing over

Question

Pardoe, 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 2.5 pounds $4.25 per pound $10.625 Direct labor 0.5 hours $11 per hour $5.5 Variable manufacturing overhead 0.5 hours $2.50 per hour $1.25 During March, the following activity was recorded by the company: • The company produced 4,000 units during the month. • A total of 13,500 pounds of material were purchased at a cost of $37,800. • There was no beginning inventory of materials on hand to start the month; at the end of the month, 2,700 pounds of material remained in the warehouse. • During March, 2,200 direct labor-hours were worked at a rate of $11.50 per hour. • Variable manufacturing overhead costs during March totaled $2,950. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for March is:

Explanation / Answer

Materials Price Variance = (Standard Price - Actual Price) * Actual Quantity

Standard Price Per Pound = $4.25

Actual Price per pound = 37800 / 13500 = $2.80

Actual Quantity = 13500 pounds

Material price Variance (at time of purchase) = (4.25 - 2.8) * 13500

Material Price Variance = 1.45 * 13500

Material Price Variance = $19575 (FAVOURABLE)

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