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Dear Sir. Could you please help me with this question. I am not able to understand the answer key given in the kit. Total material usage variance is the difference between Actual Usage and Standard Usage for Actual Production the whole x Standard Cost. Am I right? But I am not able to find the right answer.
The Organic Bread Company (OBC) makes a range of breads for sale direct to the public. The
production process begins with workers weighing out ingredients on electronic scales and
then placing them in a machine for mixing. A worker then manually removes the dough from
the machine and shapes it into loaves by hand, after which the bread is then placed into the
oven for baking. All baked loaves are then inspected by OBC’s quality inspector before they
are packaged up and made ready for sale. Any loaves which fail the inspection are donated
to a local food bank. The standard cost card for OBC’s ‘Mixed Bloomer’, one of its most
popular loaves, is as follows:White flour 450 grams at $1.80 per kg $0.81
Wholegrain flour 150 grams at $2.20 per kg $0.33
Yeast 10 grams at $20 per kg $0.20
Total 610 grams $1.34Budgeted production of Mixed Bloomers was 1,000 units for the quarter, although actual
production was only 950 units. The total actual quantities used and their actual costs were:kgs $ per kg
White flour 408.5 1.90
Wholegrain flour 152.0 2.10
Yeast 10.0 20.00
Total 570.5What is the total material usage variance for OBC for the last quarter?
A $3.30 favourable
B $20.90 favourable
C $20.90 adverse
D $34.20 favourableThe answer is in the book
Measures whether more or less material than expected during production, and it’s a key part of variance analysis.
It’s calculated by comparing the actual amount of material used to the standard amount that should have been used, based on actual production output, and then multiplying the difference by the standard cost per unit of material.
Usage looks at the……Difference between
AQ at Std Price
Std qty at Std PriceAQ. SP
408.5 / 152 / 10
1.80 / 2.2 / 20
735.30 / 334.4 / 200
= 1269.70
SQ SP – 950 @ 1.34 = 1273
Is 3.3F
Is standard quantity not 1000 units? Isn’t 950 units the actual production? I am not able to understand just this part. I understood actual quantity at standard price.
No the variances is based on the actual units produced at the standard
AQ. AP
Gives you price
AQ. SP
Gives you usage
Au * SQ * SP
It’s a flexed concept
What did we actually make!
Watch John’s video on this
Try to move on from this
It’s a 2 mark questionThe favourable material usage variance means that we used less material than expected which could have been caused by reduced levels of wastage in the production process.
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