BPP Practice question 15.1

Hello sir,

I went through the variance analysis lecture and the practice examples from the OpenTuition note multiple times as I found it confusing. I’m applying same logics as what we practiced in the examples from OpenTuition to the BPP practice questions, however a few questions seem to have a different approach and I do not understand the answer. Please help me.

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15.1. KW Co manufactures a single product L, for which the standard material cost as follows.

Material 14 kg x $3 / $42 per unit

During July, 800 units of L were manufactured, 12,000 kg of material were purchased for $33,600 of which 11,500 kg were issued to production.
KW values all inventory at standard coast.

Required: What are the material price and usage variance for July?
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1. My approach (which I believe it’s the same in the OpenTuition Chapter 26, Variance Analysis, Example 2 “Materials”)

– Mat. price (expense):
Budgeted:
Flexed: 11,500 kg x $3 = $34,500
Actual: $33,600
———-
$900 (F)

– Mat usage:
Budgeted: 12,000 kg
Actual: 11,500 kg
———-
500 kg x $3 = $1,500 (F)

2. Answer
Price: $2,400 (F) / Usage: $900 (A)
Since inventories are valued at standard cost, the material price variance is based on the material purchased.

12,000 kg material purchased should cost (x $3) $36,000
but did cost $33,600
———-
Material price variance: $2,400 (F)

800 units manufactured should use (x14 kg) 11,200 kg
but did use 11,500 kg
———-
300 kg (A) x $3 (standard price per kg) = $900