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Dear Mr Moffat.
I came across below question for which the answer does not make sense to me.
For my understanding and based on my working the answers provided in the book are not wrong but not relating to the questions asked.
I would appreciate if you could review my working and comment and highlight any mistakes found.Question:
Cabrinda Co manufactures bulbs. The following figures are available:
500 Kg of direct materials were actually purchased
The standard cost per Kg is $2.25,leading to a standard cost of actual purchases of $1,125
The direct materials price variances is $125 favourable
The direct materials usage variances is $45 adveseRequired:
From the information provided calculate:
1) The actual PRICE X KG for the direct material
2) The standard qty that should have been used for the actual productionMy working
1) If the price material variance is favourable, it means that we have spent $ 125 less therefore the actual price paid for the material bought is $ 1,000 (1,125-125). As the question has asked for Price per Kg my answer was $2,00 (total paid $1,000/500 qty bought)
2) By answer this question I presumed the qty purchased was the same qty for actual production. As the direct material usage variance is adverse my answer was kg 480 that is result of 500kg – 20 ($45/2).
Now the book answer.
1) Actual Qty * Actual price 500*2 = $1,000
Price difference 125F
Actual qty * Standard price 500*2.25 $1,125Because there is not specified the answer I guessed they wanted to say that the correct answer is $1,000. If it is the case, I don’t think it is correct as the question is asking for the actual price per unit and not the actual spent for the actual purchase.
2) Standard qty * Standard price =480*2,25 = 1,080
Once again the question is asking for qty usage NOT for variance usage.
The only concern that at this point I have for the question 2 is that we ALWAYS need to cost out the usage qty per the standard cost, however if it is the case it still does not make sense to me to this question.
Thank you very much for your help
RegardsGabbi
It seems that the answers in your book have not actually answered the question correctly!
As far as (1) is concerned, your answer is correct (the book answer is the same although the have not actually highlighted the final answer.
With regard to (2) what you are doing is correct. But because the variance is adverse, it means we used more than we should have (not less), So the actual usage is 500 + 20 = 520 kg.
Dear Mr Moffat
Thank you very much for your feedback.
Regarding question two I have to admit that at the beginning I answered as you saying, then I corrected myself as if “we actually purchase 500kg” we cannot use 520. I know that we could have used material in the inventory and the question does not specify anything. Said that if I will come across a similar question in the exam which approach should I take? Should I answer as you said ignoring the qty purchase?
thank youGabbi
Ooops.
Sorry – you were correct and I apologise 🙁
(It is late here and I have answered so many questions that I guess I must be falling asleep).
Hi Moffat,
Thanks s lot for this platform
Kindly help solve this problem-Budgeted sales for product X in January are 5,000 units at a standard selling price of $12 per unit. The standard variable cost of X is $8 per unit. Actual selling price in August is $13 per unit, resulting in a sales price variance of $8,000 favourable.
What is the favourable sales volume contribution variance in January?
If they are selling at $13, which is $1 more than standard, then to get a total price variance of $8,000 they must have actually sold 8,000 units.
This is 3,000 units more than budget, and the standard contribution of $4 per unit. So the sales volume variance must be 3000 x $4 = $12,000 favourable.
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