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Can you please help me solve this question?
One unit of product A requires standard 2 kilos of raw material. And standard price for one kilo of this raw material is $2. There was no opening inventory of raw material. During the period 500 kilos of raw material was purchased at a cost of $1500 and 450 kilos of raw material was used to manufacture 200 units of product A. Closing inventory of raw material was 50 kilos and closing inventory is valued under standard cost. What is material price variance?Which of these answers is correct?
1. $1500/500=$3/kilo and price variance is 450*($3-$2)=$450
2.
Q $ Total value
opening inventory 0 – 0
purchases 500 3 1500
closing (50) 2 (100)
issues 450 1400/450=3.11 1400and here price variance is 450*($3.11-$2)=$500
Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they have answers and explanations!!!
The price variance is always calculated on the materials actually purchased. Since they purchased 500 kg, the price variance $1,500 – (500 x $2) = $500 (A)
(It is only when calculating the usage variance that we look at the material actually used.)
I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
Thank you for answer!
In Paper F2 it is said that price variance is calculated on the quantity used if inventory is valued under FIFO method, isn’t it?
No – it should be calculated on the quantity purchased.
For Paper F2 (and F5) inventory is always valued at standard cost when we are doing variance analysis.
Hello Sir
there is a topic by the name of material inventory and variances in standard costing chapter
It’s told that if the material we purchasing is not fully used and inventory remains at end of periodWhen we calculating material price variance the calculation is based on total of material we purchase weather they are used or not
But there is no information what if we have opening inventory as well
The calculation is based on material purchase + opening inventory
Or only based on material purchasedThank you
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