Material Usage Variance - Help Needed!!

rSpurrell

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

PeterC

You need to calculate the standard and actual costs for making 15,000 units. Your actual is correct (£52,650) but the standard material cost for 15,000 units is 15,000x0.5kg/unit x £6.75 per kg (not 9000x6.75).
For more guidance, try: meadowgatetraining.co.uk/encyclopaedia-of-accounting/

Sugerlips

With every question on direct material variances I always work out the budgeted information first, by breaking it down to cost and kg per unit:

As 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.