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Variances

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Variances

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • November 17, 2014 at 7:37 pm #210776
    aisha
    Member
    • Topics: 9
    • Replies: 8
    • ☆

    Hi John sir, plz help me with the following question, The answer i find is quiet different and m confused.

    A company operates std absorption costing system. The following information has been extracted from the standard cost card of one of its products:

    Budgeted production 1,500 units
    Direct materials cost: 7 kgs * $4.10 = $28.70 per unit

    Actual results for the period were as follows:

    Production 1600 units
    Direct material ( purchased and used ) 1200 kgs, cost $52,200

    It has subsequently been noted that, due to a change in economic conditions, the best price that the material could have been purchased for was $4.50 per kg during the period.

    Find material price planning variance

    I could not understand the solution , it takes 0.4 difference in price and multiplies it with 11200 units. 11200 UNITS are confusing me.

    November 18, 2014 at 9:17 am #210898
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    What you are forgetting is that the prices of 4.10 and 4.50 per kg.

    The actual production is 1600 units, but each unit has standard usage of 7 kg, so the standard usage for the actual production is 1600 x 7 = 11,200 kg.

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