Forums › Ask CIMA Tutor Forums › Ask CIMA P1 Tutor Forums › Operational price variance (two approaches in Cima P1 Course Book – BPP)
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Cath.
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- July 17, 2024 at 7:53 pm #708641
Dear All!
I would like to ask for your help regarding the method of calculating Opeational price variance.
I have run into 2 caculation method in my CIMA P1 Course book.Example:
Budget: raw meterial cost per unit of product: 2kg of cooper per 1 usd per kg
Actual: 1 000 units produced at a cost of 3 250 usd for 2 200 kg of cooper.Material price operational variance:
Revised standard cost for revised standard kg for actual output 1 000 * 2 * 1,5 = 3 000 (why not 2200*1,5)Actual cost 3 250
My question relates to the “Revised standard cost for revised standard kg for actual output” part.
Why the budgeted usage kg/unit is used instead of the actual usage of kg/unit? In this very book in a different example the actual usage of kg/unit is being used, the same way as OpenTuition tutor is showing it in the video.
Can you please tell me under what condition can the budgeted usage kg/unit used in the calculatin of “Revised standard cost for revised standard kg for actual output” part? Thank you in advance for your help.
Best regards AlexanderAugust 1, 2024 at 6:22 pm #709080Hi, Thanks for your question and im afraid there are two absolute valid ways to calculate planning & operational level variances that give two different answers.
I believe the one in our Open Tuition videos was cited as CIMA’s preferred method – however, I do also think that CIMA exam questions would be written with the awareness that two valid methods exist so would ask a question that would not contradict either.
Hope that helps - AuthorPosts
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