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a company has a standard cost card which includes selling price per unit to be $200, 4 kg material @$20 per kg and 6 hours labour @7 per hour and standard contribution per unit to be $78.
the budgeted production and sales were to be 2500 units but he actual production and sales were 2850 units.
The following information are relevant to the topic:
1. the normal material became unobtainable and it was necessary to uses an alternative. Unfortunately, 0.5 kg per unit extra was required and it was thought that the alternative was expected to be $16.5 per kg. actual usage was 12450 kg/$18.
2. weather conditions unexpectedly improved for the period with the result that a 50c per hour bad weather bonus, which were included in the original budget did not have to be paid. because of the difficulty expected with the alternative material, management need to pay workers $8/ hour. 18800 hours were paid for.Sir,
I would like to know the answer as from were i found the question the answer they are giving is not getting reasonable to me according the formula of variances.@jonyrazib said:
:O impressiveI am sorry, but I really do not have the time to provide a full answer to the question – especially since you already have one in your book (and I am sure it is correct).
I would guess that the problem is almost certainly because there are two ways of calculating planning and operational variances (which is what this question is about) and the two ways give different answers! The examiner always accepts either method (because some people argue one way is best and others argue the other way is best).
Until this year, all of the study texts, revision kits, and our lectures and notes, did it the way that the previous examiner preferred. However, all of the current editions of study texts, revision kits, and our lectures and notes, now do it the way that the current examiner prefers (which is actually easier).
So your problem is that probably the book you are using is doing it a different way than the method that you have learned. That will mean that they get different answers (although, as I said before, the examiner says she will always give full marks for doing it either way).
If you are using a 2015 edition of your book, then it will do it the same way as I do in our free lectures. If you are using an older edition then it will be doing it a different way.
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