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Hi sir,
Can you tell me whether my answers are right or wrong for this question as I don’t have the correct answers? 🙂
“A Co. makes two products X and Y. The standard costs for each unit of X and Y is 2 kgs and 1.5 kgs at the price of $6 per kg, respectively. Production level for the month of January is:
X: Budgeted 140,000 (units) – Actual 130,000
Y: Budgeted 200,000 (units) – Actual 240,000The actual cost of material purchased was $6.2 per kg and 270,000 kgs were used to make X and 350,000 kgs were used to make Y. The company changed its design of the products at the beginning of the month and the new design requires 8% material less than previously budgeted.”
Calculate the materials price and usage planning/operational variance for the month of January.
And here’s what I’ve done:
Planning:
– Price:
-X was $259,200 (F)
-Y was $252,000 (F)
– Usage:
-X was $124,800 (A)
-Y was $172,800 (A)
Operational:
– Price:
-X was $183,600 (F)
-Y was $238,000 (F)
– Usage:
-X was $184,800 (A)
-Y was $112,800 (A).And finally thank you for your help. 🙂
I don’t know how you have calculated your answers, but they cannot possibly be correct.
For material X, there is no mention of the price being revised, and so the planning price variance is $0.
The operational price variance is the extra $0.20 on each of the 270,000 kg purchased, which is $54,000 (A)Your operational usage variance for X is correct. However your planning usage variance cannot be correct – it can’t be adverse if they revised the design to use less material!
(If you have the question, why do you not have the answers??)
Because it’s my homework… So I don’t have the answers. And I’m still a little bit confused about these Planning & Operational variances.
But I wonder that if you pleased, can you show me how to figure out these variances?
Oh, anyway thank you for your help. 😀
Have you watched my lecture on planning and operational (because I go through the rules in the lecture)?
Sir
Please Sir I don’t understand why the operational price variance is not nil as well as there is not revised price.I though the formula for operational price variance is
(revised rate – actual rate actual) actual purchased.planning price variance is
(revised rate – standard rate) actual purchased.I don’t if i’m confused or missing something.
The price is not revised and so the revised price is the same as the original standard price of $6.00
So the planning variance is zero, and the operational variance is the extra $0.20.
so when there is not revised price we should consider the standard price the revised price, I understand now. But Sir why not consider it the price planning variance as well?
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