Acme Company’s production budget for August is 18,900 units and includes the fol

Question

Acme Company’s production budget for August is 18,900 units and includes the following component unit costs: direct materials, $7.20; direct labor, $11.40; variable overhead, $5.40. Budgeted fixed overhead is $46,000. Actual production in August was 21,840 units, actual unit component costs incurred during August include direct materials, $9.60; direct labor, $10.80; variable overhead, $6.20. Actual fixed overhead was $48,900, the standard direct material cost per unit consists of 8 pounds of raw material at $0.9 per pound. During August, 262,080 pounds of raw material were used that were purchased at $0.80 per pound.

Required: Calculate the materials price variance and materials usage variance for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Explanation / Answer

Direct Material Price Variance:

= 262,080 x 0.8 - 262,080 x 0.9

= 209,664 - 235,872

= -26,208 U

Direct Material Usage Variance:

= Actual Quantity x Standard Price - Standard Quantity x Standard Price

= 262,080 * 0.9 - 151,200 * 0.9

= 235,872 - 136,080

= 99,792 F

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