Practice question FP paper 1 help please

katiekitkat123

I am really struggling with my revision on FP its my last exam and I really click with FP I have been unable to complete any paper practice exam even though I can write out all the variances etc correctly I just cant pick up or manipulate the figures to be able to use the formula to get the right answer

This is a question from the first online practice paper but I cant figure out how to get the correct answer,

2. A company purchases 5000 kilograms of material at a cost of £15000. The budgeted production was 1000 units, which requires 4000 kilograms of material at a total standard cost of £14000. The actual production was 1000 units. The material usage variance is:

A £3.50
B 1000 kilograms
C £3000
D £3500

I know the variance for material usage is (Standard Usage-Actual Usage) x Standard Price

but I just don't know how to pick up the figures, I know I need to flexs the the budgeted but again don't know how and what figures to use.

I'm finding it quite frustrating, I've been to every lesson, read the kaplan book (2010), but I still can't get what to do any help would be greatly appreciated

coojee

First work out how much material you would expect to use for the amount actually produced:
Amount produced = 1000 units (which is the same as budgeted so are you sure you've typed out the question correctly?) 1000 units requires 4000kgs of material to produce it.

Now there's information missing, you need to know what the actual material usage was, I'll assume it's the 5000kgs purchased (but that may not be the case as they could have bought material and not used it all)

So we expected to use 4000kgs to produce 1000 units but we actually used 5000kgs to produce 1000 units so we've used 1000kgs more than we expected, an adverse variance of 1000kgs. Answer B. Normally we would convert this to cost but we're not given any information about standard cost so we can't do that.

It's not a very well worded question, too many ambiguities in it.

NicF

There is information about the standard costs in the question - 4000kg at £14000, making the standard cost £3.50 per kilogram. The answer to the question is £3500.

crispy

Hello,

I don't know if this is correct but here is my answer - when I took this exam I didn't try to memorise formulas just looked at what the standard was, what was actual, and then favourable or adverse.

Standard Price: £ 14,000 / 4,000 Kgs = £ 3.50 per kg
Standard Usage: 4,000 Kgs / 1,000 units = 4 kgs per unit

Therefore:
Standard: 1,000 Units x 4 kgs = 4,000 Kgs @ £ 3.50 = 14,000
Actual: 5,000 Kgs @ £ 3.50 = 17,500
Variance: 3,500 (A)

All the above is showing is that 1,000 units should of used 4,000 kgs, but instead used 5,000 kgs - the variance is price at the standard cost of £ 3.50 - so 1,000 @ £ 3.50 = £ 3,500

Hope is is correct and makes some sort of sense

katiekitkat123

I copied and pasted the question so that is all the information for the question, I've checked the answer it is £3,500, thank you Crispy for showing me how the answer is worked out and thank you NicF and coojee for your help.

My tutor has told use to memories the variances and write them down and ill be fine but its not helping when I don't know what to do with the figures, I think i'm being really stupid but I still don't quite know how to use the figures given to work out things like the standard price, I think its the words used to describe each amount that is confusing me

crispy

I agree with you - recalling forumlae by learning by rote may work well when all the info is easy to pick out - but when a question is worded or presented slightly different then it can get a bit messy as to pick out what is what.

I think if you were to practice with a few different styles of standard costing question, once you have it cracked you will be fine. You don't have to rote learn all formlae to pass this exam, just find a way which works best for you.

aaron0121

Hi Katie,

This is how i worked out the answer by using this formula SP(SQ-AQ)

SP=14000/4000=3.5
SQ= 4000
AQ= 5000

3.5(4000-5000), this hopefully should get the correct answer of 3500 ad.

I have my FP exam in 2 days time and also i'm struggling on the variance part. However after reading the osborne book tutorial on FP, the has really helped me out a lot to learn how to work out the variances.
It's your last exam so the hard work is almost done, keep revising the practise papers and remember if you have any other questions or queries, the forum is happy to help. :thumbup1: