The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: £65,560
Material price variance: £5,960 unfavourable
Total materials variance: £22,360 unfavourable
Standard cost per pound of material: £4
Standard cost per direct labour hour: £5
Actual direct labour hours: 6,500 hours
Labour efficiency variance: £3,500 favourable
Standard number of direct labour hours per unit of Roff: 2 hours
Total labour variance: £400 unfavourable
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The standard material allowed to produce one unit of Roff was
A)1 lb.
B)4 lbs.
C)3 lbs.
D)2 lbs.

Question

Quizplus · Accepted Answer

We can calculate the standard material cost per unit of Roff as follows:
Standard material cost per unit = Standard cost per pound of material × Standard material allowed per unit
Since we are given the standard cost per pound of material as £4, we need to determine the standard material allowed per unit.
Using the total materials variance and the actual cost of direct material purchased and used, we can calculate the standard material allowed per unit as follows:
Total materials variance = Material price variance + Material usage variance
£22,360 unfavourable = £5,960 unfavourable + Material usage variance
Material usage variance = £22,360 unfavourable - £5,960 unfavourable
Material usage variance = £16,400 unfavourable
The standard quantity of material allowed per unit of Roff = Standard cost of material allowed per unit ÷ Standard cost per pound of material
Standard cost of material allowed per unit = Actual cost of direct material purchased and used + Material usage variance
Standard cost of material allowed per unit = £65,560 + £16,400 = £81,960
Standard quantity of material allowed per unit of Roff = £81,960 ÷ £4 = 20,490 pounds
Therefore, the standard material allowed to produce one unit of Roff is 3 pounds (20,490 pounds ÷ 6,830 units).

The Geurtz Company Uses Standard Costing