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Question:
The standard direct material cost for a product is $ 50 per unit (12.5 kg at $4 per kg). Last month the actual amount paid for 45690 kg of material purchased and used was $173280 and the direct material usage variance was $15200(A).
What was the actual production last month?
Sir, please explain 3344 units as answerEither you have mistyped the question, or there is an error in your book – the answer is not 3,344 units.
Yes sorry sir!
The standard direct material cost for a product is $50 per unit(12.5 kg at $4 per kg). Last month the actual amount paid for 45600kg of material purchased and used was $173280 and the direct material usage variance was $15200 adverse.Given that the usage variance is $15,200, they must have used 15,200/4 = 3,800 kg more that they should have used.
Therefore the standard usage for the actual production is 45,600 – 3,800 = 41,800 kg
Therefore the actual production must be 41,800/12.5 = 3,344 units.
Have you watched my free lectures on variance analysis? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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