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Good afternoon,
I am having a bit of a problem with an exercises and I wanted to kindly ask you, if you can please help me understand how to deal with this type of question:
A co. manufactures a single product. An extract from a variance control report together with relevant standard cost data is shown below:
Standard selling price per unit $70
Standard direct material cost(5kg* $2 per kg) $10
Budgeted total material cost of sales $2300 per month
Budgeted profit margin $6900 per monthActual results for February
Sales revenue $15200
Total direct material cost $2400
Direct material price variance $800 adverse
Direct material usage variance $400 favourableThere was no change in inventory levels during the month.
What was the actual production in February? What was the actual usage of direct material during February?
Thank you!
The actual total materials cost = 2400
The total materials variance (800(A) + 400(F)) = 400 (A)
So…the standard cost for the actual production must be 2400 – 400 = 2,000.
The standard cost per unit is $10. So we must have produced 2,000 / 10 = 200 units.
The usage variance is 400 (F), so since the cost is $2 per kg., we must have used 200 kg less than standard.
Standard usage for 200 units production is 200 x 5 = 1,000 Kg.We used 200kg less, so the actual usage must be 800 Kg.
(PS I cannot always check the general forum – the general forums are for students to help and discuss with each other. If you want me to answer, then please post in the F2 Ask the ACCA Tutor Forum 🙂 )
Thank you so much! Next time I will post in the tutor forum:D sorry for any inconvenience.
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