Preble Company manufactures one product. Its variable manufacturing overhead is

Question

Preble 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:

The company also established the following cost formulas for its selling expenses:

The planning budget for March was based on producing and selling 32,000 units. However, during March the company actually produced and sold 37,600 units and incurred the following costs:

Purchased 200,000 pounds of raw materials at a cost of $9.40 per pound. All of this material was used in production.

Total advertising, sales salaries and commissions, and shipping expenses were $416,000, $525,200, and $135,000, respectively.

If Preble had purchased 210,000 pounds of materials at $9.40 per pound and used 200,000 pounds in production, what would be the materials price variance for March?

and FYI the answer is not 120,000

Preble 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:

Explanation / Answer

The material price variance for the month of March would be $126,000 Favorable.

The direct material price variance may be calculated at the time of purchase of actual quantity of material or consumption of actual quantity of material.   If direct material price variance is calculated at the time of purchase then the direct material price variance would be as under: Driect material price variance=Actual quantity of material purchased×(standard cost per pount-Actual cost per pound)    '=210,000×($10-$9.40)    '= $126,000

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