Ardmore Enterprises uses a standard cost system in its small appliance division. The standard cost of manufacturing one unit of Zeb is as follows:
Materials [60 pounds at $1.50 per pound] $90
Labor [3 hours at $12 per hour] $36
Factory Overhead [3 hours at $8 per hour] $24
Total Standard cost per unit $150
The budgeted variable factory overhead rate is $3 per labor hour and the budgeted fixed factory overhead is $27,000 per month. During May, Ardmore produced 1,650 units of Zeb compared to a normal capacity of 1,800 units. The actual cost per unit was as follows:
Materials (purchased and used) [58 pounds at $1.65 per pound $95.70
Labor [3.1 hours at $12 per hour] $37.20
Factory Overhead [$39,930 per 1,650 units] $24.20
Total actual cost per unit $157.10
The total material quantity variance for May is:
a. $4,950 unfavorable
b. $14,850 favorable
c. $14,850 unfavorable
d. $4,950 favorable
The answer is d. $4,950 favorable. (60*1650)-(58*1650)=3,300 * $1.50 = $4,950
I am using Becker to study so for the solution I approached it as:
DM Qty Variance = (Standard Qty – Actual Qty) * Standard Rate
DM Qty Variance = (1,800 – 1,650) * $1.50
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