Question

Garry's Corporation's most recent production budget indicates the following required production:

	October	November	December
Required Production (units)	210,000	175,000	110,000

Each unit of a finished product requires 5 pounds of raw materials. The company maintains raw materials inventory equal to 25% of the next month's expected production needs. How many pounds of raw material should Garry plan on purchasing for the month of November?

39) Magno Cereal Corporation uses a standard cost system for its "crunchy pickle" cereal. The materials standard for each batch of cereal produced is 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the month of August, Magno purchased 78,000 pounds of pickles at a total cost of $253,500. Magno used all of these pickles to produce 60,000 batches of cereal. What is Magno's materials quantity variance for August? 

A) $1,500 Unfavorable B) $18,000 Favorable C) $19,500 Unfavorable D) $54,000 Unfavorable 

Answer 1

Question - (1) ............ (b) ..... 793,750

Production	175000
Raw material needed / Unit	5
RM for NOV production	875000
(+) Desired ending Inventory	137500
(-) Available Beginning Inventory	218750
Planned purchases for NOV	793750

Desired Ending Inventory = 110,000 Units of Dec production * 5 pounds per Unit * 25%

Available Beginning Inventory = 875000 * 0.25 = 137500

Question - (2) ............(b) ........ 18000 Favorable

Materials Quantity variance = SR * ( AQ - SQ)

= 3 * ( 78000 - 84000 )

= 18000 Favorable

SR = Standard rate = $3

AQ = Actual Quantity = 78000 pounds

SQ = Standard Quantity = 60000 batches * 1.40 per batch = 84000 pounds