Classic Products Company manufactures colonial style desks. Some of the company\
ID: 2574519 • Letter: C
Question
Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following information to replace the lost data Actual Flexible Budget Flexible Sales-Volume|Static Results Variances Budget Variances Budget 490,000 448,650 Units sold Revenues Variable costs Fixed costs $36,210 Operating income 490,000 $187,250 $4,700 F $6,260 U $950 U$71,160 $3,750 F$39,960 $10,200 F$81,360 0$%39,960 (E)$67,490 $78,930 (D)$71,430 What is the total static-budget variance? A. $11440 favorable B. $3,940 favorable OC. $3,940 unfavorable D. $7,500 favorableExplanation / Answer
Total Static – budget variance is the difference in the Actual operating income and Static Budget operating income. Actual operating income is $78,930 and Static budget operating income is $67,490. The Actual operating income is higher than the static budget operating income. So it is favorable. The difference is $78,930 - $67,490 = $11,440. Hence the answer is a. 11,440 favorable.
Direct material price variance is calculated using the formula,
(Standard Price – Actual Price) * Actual quantity
Standard Price is $20 per pound
Actual Price is $19 per pound
So there is a reduction in the price which is favorable.
Actual Quantity used is 950 pounds.
So the Direct Material price variance is ($20 - $19) * 950 = $950.
Hence the answer is c. 950 favorable.
Direct Materials purchased on credit for $650,000. So Accounts payable account will be credited. Direct Material cost as per standard cost is $675,000. So direct materials account will be debited. The difference of $675,000 - $650,000 = $25,000 is favorable and it will be credited. Hence the answer is
c. Direct Materials Control $675,000
Direct Materials Price Variance $25,000
Accounts Payable Control $650,000