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Hello. I passed mock exam (F2) in your site. Bu I have one question. Example: Beech Ltd has budgeted on producing 12000 desks during April. Their standard cost card shows the standard usage of wood 1.5 metres per desk at a standard cost of $5 per metre.
They actually produced 15000 desks and used 24000 metres of wood at a cost of $108000. What is the material price variance? Suggested answer by site is $12000 favourable.But how it has been taken? According to your lectures material price varince is : actual material used x actual cost – actual material used x budgeted cost so $108000-15000×1.5×5=$4500. Isnt it? please explain.
The cost of $5 is PER METRE.
24,000 metres are used and they have costed $108,000. If they were costed at standard cost per metre, then the cost would have been $120,000 (24,0000 metres x $5 per metre).Since the actual cost of material used is $12,000 ($120,000-$108,000) LOWER than standard, so the variance is favourable.
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