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I got the follow question in a mock exam, and i’m a little confused…
Holly Ltd is producing toy dolls; each doll is expected to use the following raw materials:
Plastic 45 grams costing £0.20 per gram
Metal 5 grams costing £0.40 per gram
Horse hair 10 grams costing £0.25 per gramThe production manager has decided to use more hair in order to make the dolls more appealing. The revised design uses 15 grams of horse hair.
The actual costs of making 2000 Dolls were:
Plastic 90 kgs costing £18,500
Metal 10 kgs costing £3,800
Horse hair 19.8 kgs costing £5,346Calculate the material price planning variance for horse hair.
Available Answers
600AStandard quantity = 10g × 2000 dolls = 20,000 grams or 20 kgs
The revised quantity at the standard price is = 20,000 grams × £0.25 = 5,000
The revised quantity at the revised price is = 20,000 grams × £0.28 = 5,600
Variance = 5,000 – 5,600 = $600 Adverse
I can’t tell if I’m missing something or the question and answer aren’t related? Main issue that’s confusing me among others is how the 0.28 revised price is determined.
On a side note there isn’t anything in the question that would lead to a planning variance correct? I mean the decision to increase the horse hair would be an operational variance and not planning as it’s an internal decision that was made rather than an unpredictable external factor. I don’t know maybe im missing it completely…Hi there & thanks for your question.
Hate to conclude here that there is definitely a mistake in this question….
I do agree that the design change is an ‘uncontrollable’ factor – ie if more material is used because of a change in design then the standard usage does need to be updated/revised otherwise it will look like there has been excess wastage & the production team have used more materials for something that isn’t their fault.
So that bit is fine….
However, there is no material price planning issue because there is no revised price. Just a revised usage quantity.
We are given an actual price and an original standard price – but nothing to say there should be an updated/ revised price ( so material price planning variance is zero here).
There would be a material planning usage variance that can be calculated…
Except….
hopefully you agree the
Revised standard input is
30000kg (15 per unit x 2000 units) x 0.25So definitely a mistake in this one – perhaps flag it to the publisher & let me know what they say?
Many thanks
CathThanks Cath,
I agree with your assessment, I will notify them of the error and update you if they get back to me.
Regards,
Ah good… yes its a shame when this occasionally happens within textbooks – but so long as you can see the reasoning behind how it cant be valid – then thats something gained..
Anyway – great to meet you & many thanks
CathHi Cath,
Update from provider,
Amend from:
The production manager has decided to use more hair in order to make the dolls more appealing. The revised design uses 15 grams of horse hair.Amended to:
Since the original budget was created, there has been a sudden unexpected increase in the price of horse hair, with national prices increasing to $0.28 per gram.Which makes the question pretty straight forward.
Thanks again for your assistance,
Hi – ah good – so thats solved… well done to the publisher for admitting the error then & responding to you also… and thanks for sending an update.
It does occasionally happen – even to the best content providers – the odd question adaptation goes a bit awry – but glad its sorted
Many Thanks
Cath
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