COST ACCOUNTING
STANDARD COSTING AND VARIANCE ANALYSIS
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Question
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A product has standard material cost of $32 (4 kg × $8). During May, 3, 000 kg were purchased at a cost of $23, 000. The material usage variance for May was $1, 600 adverse and the material price variance was $1, 000 favourable. The company hold no inventory. What was the actual production level for May?
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700 units
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750 units
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800 units
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850 units
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Explanation:
Detailed explanation-1: -14 (Adverse) (b) Calculation of Material usage Variance : Material usage variance = Standard quantity of material-Actual quantity of material x Standard price per unit.
Detailed explanation-2: -The materials cost variance formula is Price Variance + Quantity Variance. Price Variance is found with the formula (AQ * AP)-(AQ * SP). Quantity Variance is found with the formula (AQ * SP)-(SQ * SP).
Detailed explanation-3: -Below are some of the Variance Analysis formulae that one can apply: Material Cost Variance Formula = Standard Cost – Actual Cost = (SQ * SP) – (AQ * AP) Labor Variance Formula= Standard Wages – Actual Wages = (SH * SP) – (AH * AP)
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