Question 2 Miguez Corporation makes a product with the following standard costs:

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Question 2

Miguez Corporation makes a product with the following standard costs:

The company budgeted for production of 2,600 units in September, but actual production was 2,500 units. The company used 5,440 liters of direct material and 1,680 direct labor-hours to produce this output. The company purchased 5,800 liters of the direct material at $7.20 per liter. The actual direct labor rate was $24.10 per hour and the actual variable overhead rate was $1.90 per hour.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The materials quantity variance for September is:

$2,170 U

$2,232 U

$2,170 F

$2,232 F

Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 2.3 liters $ 7.00 per liter $ 16.10 Direct labor 0.7 hours $ 22.00 per hour $ 15.40 Variable overhead 0.7 hours $ 2.00 per hour $ 1.40

Explanation / Answer

Answer is $2170 F Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U Material quantity variance = (AQ-SQ)*SP AQ = Actual quantity consumed= 5440 SQ = Standard quantity = 2500*2.3 = 5750 SP = Standard price per unit = $7 F= Favourable U = Unfavourable Material quantity variance AQ (a) SQ (b) Variance (c=b-a) SP (d) Total variance (e=c*d) F/U 5440 5750 310 7 2170 F

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