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Hi,
Please can you help with the below question:
One material is used in the manufacture of product X. The total cost of the material (purchased and used) in a period was $4,000. In the period, the direct material price and usage variances were $200 adverse and $300 favourable respectively and 1,000 units were manufactured.
What is the standard direct material cost per unit for product X?
$3.90
$4.30
$3.80
$4.10The answer is $4.10. The working out was: (4000-200+100)/1000
Can you explain why they do 4000 – 200 + 100. My understanding was 4000 was the actual cost they need to work out the standard budgetted cost so should do 4000 + 200 – 100. Please can you me understand this?
Thanks,
There is obviously a typing mistake in the workings because (4,000 – 200 + 100)/1,000 does not equal $4.10 !!
The answer is $4.10 and the correct workings are as you have written towards the end.
Sorry there was a typo. The solution said (4000-200+300)/1000. But I don’t understand why.
I thought actual cost was 4000 so we had to work backwards using the variance to calculate the standard direct material cost per unit i.e. (4000+200-300)/1000?
If the figures are as you have now typed then the answer should indeed be as you have written.
I can only assume that there is a typing mistake in the question.
Where did you find the question?
This question is from the ACCA Practice Test Papers
Sorry, so if I understand correctly the correct working out is: (4000+200-300)/1000. So the answer is 3.9. Is that correct?
Sorry, I have been confusing you (although you have been confusing me by typing something wrongly initially 🙂 )
Given that the actual cost was $4,000 and the price variance was $200 adverse, then the actual cost must have been 200 more than the standard cost, So the standard cost would be 4,000 – 200.
Similarly, since the usage variance was $300 favourable, the actual cost must be 300 less than the standard cost, so the standard cost must be $300 more than the actual cost.
So the printed answer is in fact correct. (4,000 – 200 + 300) / 1,000
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