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Hi, first time user.
I am wondering whether I have calculated this correctly for the material usage variance.
Standard material cost for the year: 4Mil
Actual cost: 3.696Mil
Budgeted sales: 40000
Actual Sales: 32000Standard material cost for the year: 4Mil / Budgeted sales: 40000 = standard cost / unit £100
Actual cost: 3.696Mil / Actual Sales: 32000 = actual Material price/ unit 115.5 pound
Usage Variance=
Actual cost: 3.696Mil – ( standard cost / unit £100 * Actual Sales: 32000)
= £496000
Thanks
No, it is not correct – it is impossible to calculate the material usage variance from the information given here, and could not possibly be asked in the exam unless more information was provided.
4M is the standard cost of the material used during the year (not the budgeted figure) and therefore the materials price/expenditure variance is 4M – 3.696M = 0.304M favourable.
It is impossible to calculate the usage variance without knowing the actual production (which will only be equal to the actual sales if there is no change in inventory) and without knowing the standard usage per unit and the actual total usage of material.
I do suggest that you watch my free lectures on variances (the lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well).
You should also buy a Revision Kit from one of the ACCA approved publishers, because the questions there are all of exam-standard.Hi John,
Thank you for the reply. I have overlooked some of my figures. Below is the question I am stuck with, I have tried to work through the notes but struggle to find anything similar to this. I have been asked to calculate the labour time and efficiency variance, the material usage variance, the fixed O/H volume and expenditure variance, the variable o/h expenditure and efficiency variance and the admin volume and expenditure variance. I have calculated all of the overhead variances correctly using your notes. But I am struggling with the labor and material variances.
Anderson Ltd. manufacture gearboxes for use in cars. At the start of the
year, the management of Anderson Ltd. estimated that its costs would be:
This was based on the following:
80 employees
2000 hours worked by each employee
40 000 gearboxes manufactured in the year as budgeted production
£200 unit selling price.% of sales value
Direct labour 8
Direct material 50
Variable production overhead 8
Fixed production overhead 12
Administration overhead 5You have recently been employed by the company to establish a standard
costing system. At the end of the year you were able to extract the
following information:
• labour costs £4.40/hour
• 32 000 units sold
• £210/unit selling price
• 160 000 hours were worked
• variable production overheads were £640 000
• fixed production overheads were £810 000
• administration costs were £350 000
• raw material prices were 10% higher than expected
• total expenditure on raw material was £3.696 M
• there were no opening or closing stocks of raw materials.Budgeted Cost
unit cost
£ £
Direct labour £16
Direct materials £100
Variable overhead £16
Fixed overhead £24
£156Admin overhead £10
Total £166
Selling price £200.00
Standard Profit / unit £34.00Budgeted Profit £1,360,000.00
Sales Price Variance £320,000.0 F
Sales Quantity Variance -1,680,000.0 AStandard Cost £640,000
Actual Cost £640,000Expenditure Variance 0.0
Efficiency Variance 0.0
Fixed overheads
Expenditure Variance -£150,000.0
Volume Variance -£192,000.0
Admin Overhead
Expenditure Variance -£50,000.0
Volume Variance -£80,000.0
If you could point me in the right direction that would be great.
Thank you
Unless you have been set this as a test question (and we are not here to answer test questions!) then I can’t understand why you are attempting a question for which you do not have an answer.
Again, you should be using a Revision Kit from one of the ACCA approved publishers – they have answers and workings for all the questions. You should ask about whatever it is in the answer that you are unclear about, and then I will help.For labour, the standard cost per unit is $16. The standard hours per unit (using budgeted figures) are (80 x 2,000) / 40,000 = 4 hours.
Therefore the standard labour rate = $16/4 = $4 per hour.You know what the actual production was (32,000 units); the actual hours worked (160,000 hours) and the actual labour rate ($4.40 per hour) and so now you can calculate the labour variances using the standard rules that I work through in my free lectures.
For materials, the actual expenditure is $3.696M. Since this is 10% more than expected (so is 110% of the standard cost), the expenditure should have been 100/110 x $3.696M = $3.36M. Therefore the expenditure variance is 3.696 – 3.36 = $0.336M adverse.
For the actual production of 32,000 units, the standard cost should have been 32,000 x $100 = $3.2M. Since the actual standard cost was in total $3.36M (as shown above), the usage variance must be $3.36M – $3.2M = $0.16M adverse.
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