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In the BPP exam Kit, question 56 states:
Product Bark needs:
2.5kg of material X at £4 per kg
Price is revised to £5 per kg
8,000 units were manufactured and required 22,000kg of material X which cost £123,000.What is the adverse material usage operational variance?
The solution is 8,000 but what confuses me is why BPP used the original standard, when I thought the revised standard should be compared to the Actual result when calculating the operational variances.
So what I did is:
RSQ X RSP = 8000 x 2.5 x 5 = 100,000
minus:
AQ X RSP = 22,000 x 5 = 110,000Adverse material usage = -10,000
I am confused because I have seen that proforma for operational variances in different occasions and now I am doubting if what I learn was correct.
Many thanks!!!!
There are two ways of calculating planning and operational variances that give different answers. There is a logic to both ways, but the current examiner prefers the way that I do it in my free lectures, and the way that BPP have answered this question (which is the easiest way as well). However, the examiner has made it clear that both ways will get full marks (even though the answers are different).
For that reason, a question such as the one you have typed out can not be asked as a MCQ in sections A and B of the exam, but only in Section C as a full question.Your answer would get full marks.
The way that the examiner prefers costs out both the planning variance and the operational variance at the original standard cost. So here the planning variance is zero, and the operational variance is (22,000 – (8,000 x 2.5)) x $4 = $8,000 adverse.
(The current examiner prefers this way because the planning variance and the operation variance add up to the overall usage variance)Many thanks John!
I don’t understand why LSBF didn’t mention that on their lectures!!!
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