# MDC- Sample assessment 2 Question 2

Sineadp
Posts:

**67**Registered
Sample assessment 2 Question 2 - Variances

Does anybody know how to get to the Material price of 1920 and usage variance of -720

Thanks

Does anybody know how to get to the Material price of 1920 and usage variance of -720

Thanks

## Comments

42MAAT£36 (standard cost per unit) x 300 (actual units produced) = £10800

Actual material cost of production-

The variance given is £1200 favourable so we subtract it from the total standard material cost of production. £10800 - £1200 = £9600

Material USAGE variance-

The standard usage for actual production is: 3kg (given in the question) multiplied by 300 units (also given) which equals 900kg.

Actual usage is £9600 (actual total price as calculated) divided by £10 (actual price per kg given) which equals 960kg

So 60kg more was used than budgeted, which is an adverse variance.

60kg multiplied by £12 (standard price per kg) is £720. Note that the question gives the standard cost per UNIT and not per kg - to get the standard price per kg we divide the cost per unit (£36) by the standard usage per unit (3kg)

Material PRICE variance:

This is £12 (standard price per kg as calculated above) multiplied by 960kg (actual usage as calculated above) which equals £11520, minus £9600 (actual total cost as calculated above), giving £1920

The actual price is lower than the budgeted price by £1920 so it's a favourable variance.

Material usage variance plus material price variance equals the total material variance given: 1200= 1920 - 720

Hope that helps!

67Registered67Registered42MAATStandard variable cost of production (total):

This is simply £10.50 (the standard variable cost per unit given) multiplied by 300 (number of actual units produced) = £3150

Actual variable cost of production (total):

£3150 (standard total cost) minus £210 (favourable variance given) = £2940

A favourable variance here means the actual cost was lower than budgeted so we subtract it.

Variable overhead expenditure variance:

£7 (STANDARD rate which is £10.50 divided by 1.5) multiplied by 420 (actual hours worked) = £2940 minus £2940 (actual cost as calculated) = 0!

Variable overhead efficiency variance:

450 (standard hours for actual production 1.5 x 300) minus 420 (actual hours for actual production given) = 30 hours favourable

The £ value is 30 multiplied by £7 (standard rate per hour) which equals £210

Let me know if it doesn't make sense

67RegisteredThanks for your help

67RegisteredThanks for your help

42MAATHappy to help

67RegisteredThank you

67Registered42MAATStart with the boxes that you can easily complete

The sales figures are the same for both absorption and marginal costing so enter them first

Sales Month 2 is simply £150 (selling price per unit) multiplied by 7500 (units sold) = £1125000

Sales Month 3 is £160 multiplied by 8500 = £1360000

Make sure you don't get mixed up with the months! Month 1 is not needed here

Next we can complete the marginal costing side - you can choose which side to do first but I find marginal costing much simpler.

Opening inventory Month 2:

production in Month 1 is 8000 and sales is 6500 units, giving 1500 units of closing inventory which need to be carried forward to Month 2.

The marginal cost of production in Month 1 is £35 (direct materials) + £25 (direct labour) + £20 (£160000/8000 variable production overheads per unit) = £80

1500 x £80 = £120000 opening inventory in Month 2

Production costs in Month 2:

£35 (direct materials + £25 (direct labour) + £20 (variable production overheads) = £80, multiplied by 8000 (production units) = £640000 production costs in Month 2

Closing inventory in Month 2:

Closing inventory in units is 1500 (brought forward from Month 1) plus 8000 (production in Month 2) minus 7500 (sales in Month 2) = 2000 units

This is valued at the marginal cost of production per unit in Month 2 which is £80

2000 x £80= £160000 closing inventory Month 2

Cost of Sales is simply £120000 + £640000 - £160000= £600000

Fixed costs are £304000 as given in the data for Month 2

Profit/loss is £1125000 - £600000 - £304000 = £221000

The marginal costing calculations for Month 3 are similar to Month 2 - just remember that the opening inventory for Month 3 is the closing inventory of Month 2 (£160000). And the closing inventory for Month 3 is 2000 (units b/f from month 2 as calculated above) plus 8000 (production month 3) minus 8500 (sales month 3) = 1500 units x £81 (marginal cost per unit Month 3) = £121500

Under absorption costing the fixed costs are included in the production costs per unit

Opening inventory Month 2:

There's 1500 units opening inventory in Month 2 as calculated before. The full cost per unit in Month 1 is £35 + £25 + £20 + £38 (fixed cost of production per unit which is £304000/8000) = £118

1500 x £118 = £177000 opening inventory month 2

Production costs Month 2:

£35 + £25 + £20 + £38 = £118, multiplied by 8000 = £944000

Note that the costs in Month 2 just happen to be the same as Month 1, be careful as they could be different in other cases

Closing inventory Month 2:

As calculated previously, the closing inventory for Month 2 is 2000 units. Valued at the full production cost it's 2000 x £118 = £236000

Costs of sales and profit/loss calculation is straightforward as usual, and fixed costs remain blank as they have already been absorbed into the units

Absorption costing for Month 3 is again similar. Opening inventory is £236000 brought forward from Month 2. Closing inventory is 1500 units, multiplied by the full production cost per unit for Month 3 which is £119, totalling £178500

The question 4s in the other practice assessments are basically the same, I won't go through them unless there's a particular calculation you're stuck on?

42MAAT> Also do you know any key things to help with the written questions. Thank you

To be honest I haven't even got my results back for this exam yet, and I can't tell how I've done on the written parts!

I'd say put as much detail as you can on the written questions even if the points seem very obvious.

When are you planning to take this exam?

67Registered67Registered