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Hello sir,
I hope this massage finds you well. I am here to asking a question about material usage variance
based on the Kaplan MA book. The formula for the material usage variance is:
(Actual quantity used x Standard price) – (standard quantity for actual production x standard price)
But I think it’s a bit un logical , it should be like this:
(standard quantity for actual production x standard price) – (Actual quantity used x Standard price)
Cause suppose our standard material usage for period is 110 kg but we actually use 100 kg. We actually save 10 kg of material and it’s a favorable variance and cause an increase in profit. But if we use book formula, we took a completely opposite result.
Could you please clarify this for me?
Thank you,And sir, I forgot to write this in my previous massage. What if we make the formula a bit easier? Is it right to use:
(Standard usage – Actual usage) x standard cost
Cause by subtracting Standard usage from actual usage, we just know whether we use more or save material than our expectation, and by multiplying the cost, we find how much profit/loss it becomes.
Is it right?
Yes – your second post is correct.
Do watch my free lectures on this. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well 🙂
Thank you sir,
Yes, I do see your free lecture notes. They are very effective, and you are the only teacher who explains the formulas in a logical way. I appreciate you taking the time to provide these valuable resources for free. They have been incredibly helpful in my preparation for the Paper MA exam.
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