- This topic has 3 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
Production and sales for the period were 9,000 Basic kennels and 2,000 Fancy Kennels.
The material variances for the Basic and Fancy models seemed to be in stark contrast with each other. Both models used an average of 2kgs of wood and fabric combined. The standard material cost per Basic model was £6 and the standard material cost per Fancy model was £7. The Basic model was reporting both a favourable price variance of £4,250 and a favourable usage variance of £3,000. However, the Fancy model was reporting an adverse price variance of £420 and an adverse usage variance of £700My question is the 2kgs of material mentioned above is standard material or actual material used in both models?? The wording is really confusing. And what would be the actual quantity and actual price for both models??
The 2kg has to be the standard usage.
The rest of the question involves using the variance ‘rules’ backwards.
For Basic Kennels, the cost of material is 6/2 = 3 per kg.
Since the usage variance is 3,000 favourable, the must have used 3,000/3 = 1,000 kg less than they should have done.
For 9,000 units they should have used 9,000 x 2kg = 18,000 kg, but because of the usage variance they must have actually used only 17,000 kg.The standard cost of 17,000 kg is 17,000 x 3 = 51,000 and this is what they should have paid. There is a favourable price variance of 4,250 and therefore they must have actually paid only 51,000 – 4250 = 46,750 (or 46750/17000 = 2.75 per kg).
The same approach is needed for Fancy Kennels.
I am surprised that you do not have an answer in the same book in which you found the question. You should be using a Revision Kit from one of the ACCA approved suppliers – they have answers and workings 🙂
Thnakyou very much for your help sir. And I might have posted this question many times in this forum by mistake as I could not see the thread in the forum when I posted it. My apology for that.
- The topic ‘Variance Analysis’ is closed to new replies.