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Dear All!
I would like to ask for your help regarding the method of calculating Opeational price variance.
I have run into 2 caculation method in my CIMA P1 Course book.Example:
Budget: raw meterial cost per unit of product: 2kg of cooper per 1 usd per kg
Actual: 1 000 units produced at a cost of 3 250 usd for 2 200 kg of cooper.Material price operational variance:
Revised standard cost for revised standard kg for actual output 1 000 * 2 * 1,5 = 3 000 (why not 2200*1,5)Actual cost 3 250
My question relates to the “Revised standard cost for revised standard kg for actual output” part.
Why the budgeted usage kg/unit is used instead of the actual usage of kg/unit? In this very book in a different example the actual usage of kg/unit is being used, the same way as OpenTuition tutor is showing it in the video.
Can you please tell me under what condition can the budgeted usage kg/unit used in the calculatin of “Revised standard cost for revised standard kg for actual output” part? Thank you in advance for your help.
Best regards AlexanderHi, Thanks for your question and im afraid there are two absolute valid ways to calculate planning & operational level variances that give two different answers.
I believe the one in our Open Tuition videos was cited as CIMA’s preferred method – however, I do also think that CIMA exam questions would be written with the awareness that two valid methods exist so would ask a question that would not contradict either.
Hope that helps
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