Squeaky Clean produces commercial strength cleansing supplies. Two of its main products are window cleanser that uses ammonia, and floor cleanser that uses bleach. Information for the most recent period follows: What is the direct materials flexible budget variance for ammonia?

Question

Squeaky Clean produces commercial strength cleansing supplies. Two of its main products are window cleanser that uses ammonia, and floor cleanser that uses bleach. Information for the most recent period follows:  What is the direct materials flexible budget variance for ammonia?

Quizplus · Accepted Answer

The flexible budget variance for ammonia can be calculated as:
Actual Quantity of Ammonia Used (AQ) x (Actual Price of Ammonia - Budgeted Price of Ammonia)

AQ = 7,200 ounces (6,000 + 20%)
Actual Price of Ammonia = $0.35 per ounce
Budgeted Price of Ammonia = $0.30 per ounce

Flexible Budget Variance = AQ x (Actual Price - Budgeted Price)
= 7,200 x ($0.35 - $0.30)
= $3,600

Since the actual price is higher than the budgeted price, the variance is unfavorable. Therefore, the direct materials flexible budget variance for ammonia is $2,700 unfavorable (answer choice B).

Squeaky Clean Produces Commercial Strength Cleansing Supplies