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Direct Material Variances Actual Cost Standard Cost AQ X AP AQ X SP SQ X SP 19,000.00 X 60.84 19,000.00 X 60.00 16,000.00 X 60.00 1, 156,000 1, 140,000.00 960,000.00 (16,000.00) (180,000.00) Favorable/Unfavorable Direct material price variance 16,000.00 favorable Direct material quantity variance 180,000.00 unfavorable Total direct material variance 196,000.00 UnfavorablePhoenix Company's 2019 master budget included the following fixed budget report. It is based on an expected production and sales volume of 16,000 units. PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2019 Sales $3, 600, 000 Cost of goods sold Direct materials $960, 000 Direct labor 240, 000 Machinery repairs (variable cost) 64, 000 Depreciation-Plant equipment (straight-line) 315, 000 Utilities ($48,000 is variable) 198, 000 Plant management salaries 230,000 2, 007,090 Gross profit 1, 593, 090 Selling expenses Packaging 80, 000 Shipping 112, 000 Sales salary ( fixed annual amount) 260, 000 452, 090 General and administrative expenses Advertising expense 133, 000 Salaries 251, 000 Entertainment expense 100,000 484, 090 Income from operations $ 657, 090Phoenix Company's actual income statement for 2019 follows. PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2019 Sales (19,000 units) $4, 338, 000 Cost of goods sold Direct materials $1, 156, 000 Direct labor 293, 000 Machinery repairs (variable cost) 67,000 Depreciation-Plant equipment (straight-line) 315, 000 Utilities ( fixed cost is $147,500) 203, 750 Plant management salaries 240, 000 2, 274, 750 Gross profit 2, 063, 250 Selling expenses Packaging 92, 000 Shipping 126, 000 Sales salary (annual) 276, 000 494, 090 General and administrative expenses Advertising expense 141, 000 Salaries 251, 000 Entertainment expense 103, 000 495, 000 Income from operations $1, 074, 250Management wants to make a few changes to its operation for the next year. Assume Phoenix Company plans to produce and sell the same number of units they sold last year (connect-actual units). I a. Management believes the lower priced material has contributed to the unfavorable material quantity variance. The purchasing department wants to know what price per pound of raw material they should pay to fully offset the unfavorable material quantity variance they saw last year. Calculate the price. Hint Use MPV = (SP AP)AQ; Set material price variance to favorable (positive) amount equal to the quantity variance calculated in 2c. Use the SP 'om standard cost card in 1 and actual quantity of raw material and solve for AP, actual price). Management would like to set this as their standard raw material price per input for next year. Include the amount in NEXT YEAR'S standard cost card below in the highlighted cell. Phoenix Company Standard Cost Card - Current Year (2019) Qty per Cost per Std. Cost per Unit Input Unit (a) Direct materials 4.00 lbs. X 15.00 60.00 Direct labor 1.24 hrs. 12.10 15.00 Variable Overhead 1.24 hrs. X 5.65 7.00
