Acme Company\'s production budget for August is 17,500 units and includes the fo

Question

Acme Company's production budget for August is 17,500 units and includes the following component unit costs: direct materials. $8; direct labor, $10; variable overhead, $6. Budgeted fixed overhead is $32,000. Actual production in August was 18,000 units, actual unit component costs incurred during August include direct materials, $8.25; direct labor, $9.45; variable overhead, $6.82. Actual fixed overhead was $33,500, the standard direct material cost per unit consists of 10 pounds of raw material at $0.80 per pound. During August, 198,000 pounds of raw material were used that were purchased at $0 75 per pound. 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

Material Price Variance = Actual Quantity(Actual Price – Standard Price)

Material Price Variance = 198000(0.75-0.80)

= 9900 F (Favourable)

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