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Hi Mr. John.
I just have a simple question for you. In this question I need to know why you need to add 1 to the 4% to get 1.04%.
Thank you in advance.
The standard direct material cost per unit for a product is calculated as follows:
10.5 liters at $2.50 per literLast month the actual price paid for 12,000 liters of material used was 4% above standard and the direct material usage variance was $1,815 favorable. No stocks of material are held.
What was the adverse direct material price variance for last month?
Also Mr. John will you please give me some key points to remember when faced with variance analysis questions. I would really appreciate it. Thanks.
Taking 4% of the standard price is the same as taking 0.04 x the standard price.
Therefore the actual price is 2.50 + (0.04 x 2.50) which is the same as 2.50 x 1.04.
However, how you do the workings to get the actual price is irrelevant.
I cannot give just key points because all the workings relating to variances are as important for the exam as each other.
I assume that you have watched my free lectures on variances, which cover everything needed on them for the exam?
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