Epley Corporation makes a product with the following standard costs:

  1. In July the company produced 3,300 units using 12,240 pounds of the direct material and 2,760 direct labor-hours. During the month, the company purchased 13,000 pounds of the direct material at a cost of $35,100. The actual direct labor cost was $51,612 and the actual variable overhead cost was $20,148.

    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 July is:

  • $2,070 U
  • $2,070 F
  • $1,863 U
  • $1,863 F

Answer:

SQ = 3,300 units × 3.5 pounds per unit = 11,550 pounds
Materials quantity variance = (AQ – SQ) × SP
= (12,240 pounds − 11,550 pounds) × $3.00 per pound
= (690 pounds) × $3.00 per pound
= $2,070 U

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