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# Material Usage Variance - Help Needed!!

rSpurrell
Registered Posts:

**6**
It's question 1.2 sample assessment 2 on Financial Performance, i cant for the life of me figure out how the answer is 2025 Adverse.

Budgeted Materials - 9,000kg £60,750 Standard Rate 6.75 18000units

Actual Materials - 7,800kg £55,770 Actual Rate 7.15 15000units

I keep getting 8100 fav

7800x6.75= 52650

9000x6.75= 60750

Budgeted Materials - 9,000kg £60,750 Standard Rate 6.75 18000units

Actual Materials - 7,800kg £55,770 Actual Rate 7.15 15000units

I keep getting 8100 fav

7800x6.75= 52650

9000x6.75= 60750

0

## Comments

152For more guidance, try: meadowgatetraining.co.uk/encyclopaedia-of-accounting/

3As per your example:

Budgeted output 18000 units - 9000 kg - £60750

1 unit requires (9000kg/18000 units) =0.5kg

1 Kg cost(£60750/9000kg) = £6.75

Cost per unit (£60750/18000 units) = £3.375 or (0.5 x £6.75)=£3.375

Next step is to work out the required variance based on the ACTUAL number of UNITS for direct material and direct material usage and ACTUAL KG for direct material price variance.

Actual output 15000 units - 7800kg - £55770

Direct material usage variance:

15000 units should have used (15000 x 0.5kg) 7500kg

15000 units did use 7800kg

Variance 300kg Adverse

In monetary terms 300kg x £6.75 £2025 Adverse

Let's work out the direct material price variance:

Again we take the actual results but we use Kg instead of units

78000kg should have cost (78000 x £6.75) £52650

78000kg did cost £55770

Variance £3120 Adverse

Direct material variance:

15000 units should have cost (15000 x £3.375) £50625

15000 units did cost £55770

Variance £5145 Adverse

Check: direct material variance = direct usage variance + direct price variance

(£5145 =£2025 + £3120) Adverse

I hope this helps some how. Same principle apples for direct labour variances.