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please help me on below question. thanks.
the standard direct material cost per unit for a product is calculated as follows ;
10.5Litres at $2.50 per litrelast month the actual price paid for 12,000L of material used was 4% above standard and the direct material usage variance was $1,815 favourable. no stocks of material are held.
what was the actual prodn last month in units?
A. 1074
B. 1119
C. 1212
D. 1258the answer is C.
my teacher gave this question to the class, i don’t know from which book. he just handed us some booklets and provided us with the answers but there are no workings. and for the moment he is out of country. so im not being able to contact him.
Well here is my take on it Urvashi.
First lets state all the relevant formulas here
Total direct material variance= difference between
how much actual units should have cost AND how much did they cost in actualPrice variance of material= difference between
actual purchase at actual cost AND actual purchase at standard costMaterial Usage Variance= difference between
actual usage AND standard usage for actual productionAlright maybe we do not need all of these formulas for this given question but keeping them in mind will help understand it better. So lets start working out the solution and than we will pick out answer from that
In question it is given that we used 12000 litres for production. And it says we paid 4 percent more than the standard price so lets see how much the standard cost would be for 12000 litres and than we will add 4 percent to get how much we actually paid
Standard price
12000*2.50= $30,000Actual price paid
$30,000*1.04=$31,200So clearly price variance would have been $1200 adverse, but unfortunately its not whats asked in the question. Moving on
It says that Usage variance is $1815 favorable and as i stated the formula for usage variance so we know that usage variance is the difference between actual usage AND standard usage for actual production. Now we know the actual usage which is given as 12000 litres or $30,000 (12000*2.50) and we know that the usage variance is $1815 favorable so what it means is that we have used $1815 worth of less material than standard (coz its favorable) and to get standard usage for the actual production we will simply add $1815 in $30,000 to get $31,815 or 12,726 litres (31815/2.5)
Putting it clearly
Actual Usage=12000 litres or $30,000
Standard Usage for Actual production =30,000+1815= $31,815 or 12726 litresAnd this is where our answer lies. Since we know the standard usage is 12,726 litres so we simply divide it by standard litres it take to make one unit which is given in question as 10.50 litres to get our answer that how many actual units were produced
Actual units produced =
Standard Usage for Actual production / standard amount to make one unit
12726/10.50= 1212 unitsHi. This is how I worked it out. I may be wrong!
Material Purchased = 12000 L
Material Usage Variance = $1815 F
$1815 buys: 1815/2.5 = 726L
This means that production is such that 12726L worth of units have been produced just by using 12000L.Actual Production = (12000/10.5) + (*726*/10.5)
= 1212 units*Mind that the actual material used/purchased is only 12000L. It is due to the material usage being Favourable that we are able to produce 12726L worth of units by using just 12000L.
When you get in contact with your teacher, please let me know how he worked this out so that I can know if I am doing anything wrong.
Thanks.
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