[tfbanker]

Hi Cath,

thanks for the answer! For material price planning variance I will use:

actual units x standard kg per unit x (original price per kg – revised price per kg)

as described in the article you linked.

Ps. Questions posting advice noted, thanks.

[tfbanker]

@tfbanker said:
I guess I figured out the approach. In case of material price planning variance the actual material purchased should be used, i.e. (original price – revised price) x actual material purchased.
For material usage planning variance this should be (original usage in kg(lt) – revised usage in kg(lt)) x actual number of units x revised price per kg(lt) (or original price per kg(lt) if there were no changes in ex-ante and ex-post price standatd).

Same should apply for labour. Is that correct?

Regards,
YRD

Nope. One of Qs in Kaplan text book says it should be actual units produced so my guessing is wrong.

[tfbanker]

I guess I figured out the approach. In case of material price planning variance the actual material purchased should be used, i.e. (original price – revised price) x actual material purchased.
For material usage planning variance this should be (original usage in kg(lt) – revised usage in kg(lt)) x actual number of units x revised price per kg(lt) (or original price per kg(lt) if there were no changes in ex-ante and ex-post price standatd).

Same should apply for labour. Is that correct?

Regards,
YRD

[tfbanker]

And here is another one from me.

Does the EV technique ignores the risk? It’s obvious that it ignores the risk attitude but what about the risk itself?

I was sure that the answe is No, it takes the risk into account because probabilities are considered. However, I recently faced with a question which says that “The limitation of using EV is risk ignorance because the spread of outcomes from the EV is not considered when EVs are used in isolation”. Absolutely confused.

Regards,
YRD

[tfbanker]

In a real exam I would come to an aswer this way.
1) Contribution forgone: 6 600 hours / 2 hours per unit = 3 300 units could be produced in normal course of business. 3 300 * ($12.5 – $8.2) = $ 14 190.
2) Additional material: 3 000 * $1 = $3 000.
3) VC: 3 000 * $8.2 = $ 24 600 (steps 2 and 3 can be combined: 3 000 * $9.2 = $ 27 600).

So I would choose option A – $41 790 ($14 190 + $27 600 = $41 790).

Regards,
YRB

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