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Good Day
I am having a bit of a challenge with the variance section, please help with the following:
A company manufactures a single product L, for which the standard material cost is as follows.
Material 14kg x$3 =$42/unit
During July, 800 units of L were manufactured, 12 000 kg of material were purchased for $33,600, of which 11,500kg were issued to production.
Co values all inventory at standard cost.
What are the material price and usage variances for July?
Answer is 2,400F & 900A
The method I have been taught to work out my variances is:
Price variance=2,400F
AQxAP 12,000×2.8(33,600/12,000)= 33,600
AQxSP 12,000×3 = 36,000Materials variance
AQxAP=33,600
SQxSP=11,500×3=34,500 but this is incorrectPlease tell me how to work out SQxSP? Or even how to perhaps apply a different, but effective approach?
Thank you very much
ZuzieI will answer, but in future if you want me to answer then ask in the Ask the Tutor Forum. This forum is for students to help each other.
Although your price variance is correct, the question asked also for the usage variance and the formula you have written is not the formula for the usage variance.
You can write the formula in various ways, but the usage variance is comparing the actual usage (11500 kg) with the standard usage (800 units x 14kg = 11200 kg), in both cases costing at the standard price of $3. The actual usage is 300 more than the standard usage and so the variance is 300 x $3 = $900 adverse.
I hate just learning formulae, but if you want it as a formula then it is (SQ x SP) – (AQ x SP)
The formula you have written is that for the total materials variance, which is not asked for.)(You might find the free lecture on variances to be useful 🙂 )
Yes indeed I realised that just cramming the formulae and not understanding the concept is not so much of a good idea.
Thank you so much, appreciate your help
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