Question

Manor, Inc., forecasts monthly production of 15,000 units at a materials cost of $4 each. In July, Manor produced 16,000 units. Each unit produced is budgeted to include 2 pounds of materials at $2 per pound. If 33,000 pounds of material at a cost of $1.80 per pound were used in production, compute the materials budget variance.

A. $4,000 favorable
B. $6,400 favorable
C. $4,600 favorable
D. $3,600 favorable

Answer 1

Given:

Standard production = 16,000 units × 2 pounds = 32,000

Standard material per pound = $2

Actual production = 33,000

Actual material per pound = $1.8

Find:

Materials budget variance = ?

Computation of materials budget variance.

Materials budget variance = Total Actual Amount - Total Standard Amount

Materials budget variance = (33,000 × $1.8) - (32,000 × $2)

Materials budget variance = ($59,400) - ($64,000)

Materials budget variance = $4,600 favorable

Note: It is considered in the interest of the business when the estimated cost is less than the actual cost.