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Hey Sir,
The question is as below:
Ques – A standard product uses 3 kg of direct material costing $4 per kg. During the most recent month, 120 units of the product were manufactured. These required 410 kg of material costing $4.50 per kg. It is decided in retrospect that the standard usage quantity of the material should have been 3.5 kg, not 3 kg.
What is the favourable materials operational usage variance, if it is chosen to use planning and operational variances for reporting performance?
My quest – 1) Why didnt we calculate both planning and operational variance in it ?
2) While calculating the operational variance as per the ans they have taken Standard price (4) however as per the formula is should be Actual price (4.5) ?Thanks in advance!
1 Given that the question only asked for the materials operational usage variance, then there is no point in calculating the planning variance.
2 The actual price is only relevant when calculating the price/expenditure variances – not when calculating the usage variance.
I do suggest that you watch my free lectures on planning and operational variances.
Although (as I explain in the lectures) there are two ways of doing the calculations that give different answers (although both are acceptable in the exam), my lectures show them the way that the current examiner prefers (and what is also the easiest way 🙂 )
Hi Sir,
I watched the lecture again and as per my understanding I did the cal as following:
Actual usage in kilos – 410 kgs
Actual usage in sp in kilos – 120*3 = 360 kgs
diff = 50
50* sp = 50*4 = 200and as per the book answer it 40 ?
I dont know where did I go wrong with thisYou have calculated the overall usage variance (as in basic variances). The question asks for the operational variance which is explain in my lectures on the advanced variances.
For the operation variance we compare the actual usage with the revised standard usage for the actual production.
The actual usage was 410 kgs
The revised standard usage for the actual production is 120 units x 3.5kg = 420 kg.
Therefore the operation variance = (420 – 410) x $4 = $40 (adverse)
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Sir, can you guide me to solve the this ques by using planning variance ? I really need it for my final exam, Tysm…
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