Precilla Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 40,000 pounds of direct materials for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Precilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase.

The actual number of pounds (AQ) of direct materials used to produce July's output, to the nearest whole number, was:
A) 12,000 pounds.
B) 20,000 pounds.
C) 24,000 pounds.
D) 25,000 pounds.
E) 40,000 pounds.

Question

Precilla Company uses a standard costing system that allows 2.0 pounds of direct materials for one finished unit of product. During July, the company purchased 40,000 pounds of direct materials for $210,000, and manufactured 12,000 finished units. The standard direct materials cost allowed for the units manufactured is $120,000. The performance report shows that Precilla has an unfavorable direct materials usage variance of $5,000. Also, the company records any price variance for materials at time of purchase.

The actual number of pounds (AQ) of direct materials used to produce July's output, to the nearest whole number, was:

The actual number of pounds (AQ) of direct materials used to produce July's output, to the nearest whole number, was:
A) 12,000 pounds.
B) 20,000 pounds.
C) 24,000 pounds.
D) 25,000 pounds.
E) 40,000 pounds.

Quizplus · Accepted Answer

The actual quantity of direct materials used can be calculated by understanding that the direct materials usage variance is calculated as (Actual Quantity - Standard Quantity) * Standard Price. Given an unfavorable variance of $5,000, this means the actual quantity used exceeded the standard quantity allowed. The standard quantity for 12,000 units at 2.0 pounds per unit is 24,000 pounds. To find the actual quantity used, we can rearrange the variance formula: $5,000 = (AQ - 24,000 pounds) * Standard Price. The standard price per pound can be found from the standard cost allowed ($120,000) for the standard quantity (24,000 pounds), which is $120,000 / 24,000 pounds = $5 per pound. Therefore, $5,000 = (AQ - 24,000 pounds) * $5, solving for AQ gives AQ = 25,000 pounds.

Precilla Company Uses a Standard Costing System That Allows 2