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: Product Names Window Cleaner (ammonia) Floor Cleaner (bleach) Direct materials information Standard ounces per unit oz. oz. Standard price (SP) per ounce ? Actual quantity (AQ) used per unit oz. oz. Actual price (AP) paid for material Actual quantity purchased (AQP) and used oz. oz. Price variance ? U Quantity variance U ? Flexible budget variance ? F Number of units produced What is the direct material quantity variance for the bleach?

Complete 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:

Product Names                           Window Cleaner     Floor Cleaner

                                                                (ammonia)             (bleach)  

Direct materials information  

Standard ounces per unit                     16  oz.                 24  oz.

Standard price (SP) per ounce                  $ 0.25                    ?  

Actual quantity (AQ) used per unit           20  oz.                22  oz.

Actual price (AP) paid for material            $ 1.75                $ 0.72

Actual quantity purchased (AQP) / used 1,000  oz.       2,800  oz.

Price variance                                               ?                       $ 56  U

Quantity variance                                   $4,900  U           ?  

Flexible budget variance                       ?                       $ 504  F

Number of units produced                    700              400

What is the direct materials flexible budget variance for ammonia?

A.$6,400 favorable

B.$6,400 unfavorable

C.$3,400 unfavorable

D.$3,400 favorable

The Direct Materials Flexible Budget Variance for ammonia is:

B. $6,400 unfavorable

Explanation:

1. Data and Calculations:

Actual quantity purchased = 1,000 oz

Actual price = $1.75

Standard price = $0.25

2. Direct Material Price Variance

= Actual Material Purchased (Actual Rate - Standard Rate)

= 1,000 * ($1.75 - $0.25)

= $1,500 (Unfavorable)

3. Direct Materials Quantity Variance is given as $4,900 Unfavorable.

4. Therefore, the Direct Material Flexible Budget Variance will be equal to the Direct Material Price Variance + the Direct Material Quantity Variance

Flexible Budget Variance for Ammonia

= $1,500 (U) + $4,900 (U)

= $6,400 (Unfavorable)

4. A flexible budget changes or flexes with the actual volume or level of activity.  It is not like a static budget that remains static no matter the level of activity.  With a flexible budget, the performance of managers can be judged more accurately because their performances are evaluated based on actual volumes or levels of activity.

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