Lumpy Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unit is as follows:
Inputs
(1)
Standard Quantity or Hours
(2)
Standard Price or Rate
Standard Cost
(1) Ă— (2)
Direct materials
5 pounds
$8.00 per pound
$ 40.00
Direct labor
2 hours
$14 per hour
28.00
Variable overhead
2 hours
$5 per hour
10.00
Total standard cost per unit
$ 78.00
The planning budget for March was based on producing and selling 25,000 units. However, during March the company actually produced and sold 30,000 units and incurred the following costs:
Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.
Direct laborers worked 55,000 hours at a rate of $15.00 per hour.
Total variable manufacturing overhead for the month was $280,500.
1.a) What raw materials cost would be included in the company’s planning budget for March?
1.b) What raw materials cost would be included in the company’s flexible budget for March?
1.c) What is the materials price variance for March?
1.d) What is the materials quantity variance for March?
1.e) If Lumpy had purchased 170,000 pounds of materials at $7.50 per pound and used 160,000 pounds in production, what would be the materials price variance for March?
