4. Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressu

Question

4.

Norio Manufacturing uses powdered plastics (PPS) to manufacture a high-pressure board used in a digital equipment product, Flex 10. Information concerning its operation in June is as follows:

Budgeted units of Flex 10 for June

5,000

Budgeted usage of PPS

45,000 pounds

Number of units of Flex 10 manufactured

4,000

PPS purchased

43,200 pounds

PPS used

39,000 pounds

Total actual cost of PPS used

$224,640

Direct materials usage variance—unfavorable

$21,600

The direct materials purchase-price variance (rounded to a whole number) is:

Budgeted units of Flex 10 for June

5,000

Budgeted usage of PPS

45,000 pounds

Number of units of Flex 10 manufactured

4,000

PPS purchased

43,200 pounds

PPS used

39,000 pounds

Total actual cost of PPS used

$224,640

Direct materials usage variance—unfavorable

$21,600

Explanation / Answer

direct materials purchase-price variance = pounds of pps purchased* (standard cost per pound - actual cost per pound)

standard cost per pound= 39000- {4000(45000/5000)}= 3000

21600/3000= 7.2

actual cost per pound = 224640/39000= 5.76

43200*(7.2 - 5.76)= 62208 favourable

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