Financial Performance

varker1985

Can someone help with the following question. I bet its really easy but the more I look at the more I can't work it out.

A company purchases and uses 200,000 litres of material at a cost of £0.55 per litre. The budgeted production was 22,000 units which requires 220,000 litres of material at total standard cost of £132,000. The actual production was 19,000 units.

What is the Material Usage Variance?

wabisabi

Hi
I make it £6000A:

Standard material cost is £132,000 / 220,000 = £0.60 per litre

to produce 19,000 units we should have used (220,000 / 22,000) * 19,000 = 190,000 litres

we actually used 200,000 so the usage variance is 190,000 - 200,000 x £0.60 = £6,000A

varker1985

Thank you, this is great.