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The question states that No of unit produced 2,200 (budgeted) and 2,000 ( Actual)
Direct material cost 110,000 (budgeted) and 110,000 (Actual)And the question is what was the total direct materials variance?
The answer in BPP is 10,000 adverse.
But IMO, it should be 0, because as my understanding, total direct materials variance = price variance + Q variance (or in other words, it’s the comparision between budgeted cost and actual cost). In this case, the price variance will be (55-50)x2000=10,000 adverse (50 is standard price and actual is 55)
For the Usage variance, it should be (2200-2000)x50= 10,000 favourable. And combination of 2 variance above => total direct material variance = 0So could anyone explain this problem for me. Thank you so much
The answer is correct.
The total materials variance is the difference between the actual expenditure and the standard cost for the actual production.
The standard cost per unit (from the budget figures) is 110,000/2,200 = $50 per unit.
Therefore the actual production should have cost 2,000 x $50 = $100,000.
Therefore the total variance = 110,000 (actual) – 100,000 (standard) = 10,000 adverse.It is not possible to calculate a price and usage variance – for these we would need to be told how much material per unit (e.g. how many kgs per unit).
I suggest that you watch my free lectures on variances, where this is all explained. (The lectures are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.)
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