Need help with material usage variance question AAT level 4 Budgeting

Connieciwa

I am not sure if I do the calculations correctly for th following question:

Actual output 10.000 units
Material cost £6,000 A
Material price variance £3,000 F
Standard usage per unit 2kg
Standard price £3

My calculation:
Material cost variance= £6000 Adverse
Material price variance= £3000 Favour
Standard price per kg= £3
£6000 A - £3000 F x £3= £9,000

Is this correct?

I am also not sure about the following question:

How many kgs were actually used in month two?

My calcuation:
Standard usage per unit 2 kg
Actual output= 10,000 units
10,000 x 2kg= 20,000 KG but the correct answer is 23000kg. Can anyone explain what I am doing wrong?

Many thanks

sk2022

Hi,

Is this the full question, as I am just trying to get my head around part 1, Is that how the question is online or in the book? I can help you with workings too but just need to make sure this is the full question

sk2022

Hi again,

To answer this question you will need to make a note of the formulas first as we will be working backwards as the variances have already been given.

So Material Cost (Usage) Variance Formula :

Actual Usage x Standard Price (Budgeted Price) =

Standard Usage for Actual Production (kg that you were expecting to use per unit x actual units) x Standard Price =

Materials Price Variance

Actual Quantity Purchased x Actual Rate (what you actually paid per kg) =

Actual Quantity Purchased x Standard Rate (what you expected to pay per kg) =

Now we start working it out :

Material Cost Variance :

Actual Usage (we dont know) x Standard Rate (£3) = £66,000 (£60,000 + £6,000)

This allows us to work out our actual usage which is £66,000 / £3 = 22,000kg

Standard usage for actual production (2kg x 10,000 Units) x Standard Price (£3) = £60,000

We have been told that Material cost £6,000 A this means that we have overspend on the materials if it was favourable (F) then we would have underspend so the Actual usage formula would be less than the £60,000. So we could now actually work this out (see above).

Now we will need to work out the Material Price Variance :

Actual Quantity Purchased (22,000kg) x Actual Rate (we don't know yet) = £63,000 (£66,000 - £3000)

Now we can work out the actual rate = £63,000 / 22,000kg = £2.86 to 2 decimal places

Actual Quantity Purchased (22,000kg) x Standard Rate (£3) = £66,000

But we have been told the following information : Material price variance £3,000 F. As this is a favourable our actual rate will be lower than we expected to pay (Standard rate) if it was adverse would be higher.

Even though the question doesn't tell us the actual quantity purchased we have worked out the actual quantity used which was 22,000kg, so we can now start plugging in this information into the question

This is how I would work it out but I feel your question isnt complete as the first part isnt telling me what I need to work out plus the second question in month 2, seems like missing information, was the actual output greater?

Connieciwa

hi there, thank you for taking the time to answer my question. I only see you answer today and had my exam a few weeks ago.