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Blossom Ltd manufactures and sells garden statues. The budget and actual results for materials in November are as follows:
Budget production of 7,500 units using 22,500 kg costing $90,000. Actual production 6,500 units, 20,800 kg of material purchased costing $91,520.
There was no opening inventory of raw materials at the start of November but there were 500 kg of closing inventory at the end of November.
Calculate the material usage variance.
answer:
Actual quantity used X Standard price = 20,300 X 4 = 81,200
Standard quantity X Standard price = 6500 X (22,500/7,500) X 90,000/22,500
I don’t get it last one, specifically, for instance, this first calculation “6500 X (22,500/7,500) ” why are they multiplying on 6500? and why not on 7500? And what do we get when 22,500 is divided by 7,500?
Thanks in advance
What I did is this calculations -> 7500 X (90,000/22,500)
Why am I wrong ? what I don’t understand properly?
For the material usage variance we always compare the actual amount used with the standard usage for the actual production (not for the budgeted production – obviously if we produce more or less than budgeted we will expect use more or less material!)
They budgeted on using 22,500 kg for production of 7,500 units. Therefore the should be using 22,500/7,500 = 3 kg per units.
The actually produced 6,500 units and so at 3 kg per unit they should have used 6,500 x 3 = 19,500 kg.
Have you watched my free lectures on variance analysis?
Thank you Now I understand.
yes, I watched your free lectures about this topic.
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