Variances

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:08AM in AAT student discussion
I am having problem in calculating the material price variance and the usage variances can someone please explain> I am using the osbourne workbook exercise 2.5, thanks

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Variances

    I don't have the osborne book you are working from but I calculate variances very simply.<BR><BR>This is how I was taught and it works well. <BR><BR>Example:<BR><BR>Part of Standard Cost Card for 1 Bing<BR><BR>"Bing" is the finished product.<BR>Per 1 Bing<BR>3 kgs of raw materials (X) at £4 per kg = £12<BR><BR>Actual Results<BR>100 units of Bing were produced<BR>280 kgs of (X) were used costing £1148.00<BR><BR><BR>Materials Price Variance<BR><BR>Looking at materials purchased did they cost more or less than we thought?<BR><BR>280 kgs should cost (280 x £4) = £1120<BR>280 kgs actually cost = £1148<BR>
    <BR> £ (28) Adverse (cost more)<BR>
    <BR><BR>Material Usage Variance<BR><BR>Think of the ACTUAL production. For this ACTUAL production, did we use more or less of the raw material than we thought?<BR><BR>100 bing should use (100 x 3kgs) = 300 kgs<BR>100 bing actually used = 280 kgs<BR>
    <BR> 20 kgs Favourable (used less)<BR>
    <BR>You then need to turn kgs to £'s.<BR>20 kgs x £4 per kg = £80 Favourable<BR><BR>This may seem simple stuff but it really works. Sometimes the books over complicate things and my tutor does not like complicating things and simplifies things for us. We need it.<BR><BR>Hope this helps.<BR><BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Variances

    I think I am ok in calculating the material price variance it is now the usage that is giving me problem now, I will continue to practice, i REALLY DONT WANT to go pass it, until I understand it fully. any more assistance will be appreciated. thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Variances

    Hi. Im currently studying with the Osbourne books..I havnt got it with me today but will look it up and try and help
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Variances

    ok here goes......<BR>actual qty of material was 20000kg x actual price per kg 8.80 = 176000<BR>actual qty of material x standard cost 9.00 = 180000 <BR>giving a 4000 f price variance.<BR>Usage ...<BR>act qty x std price<BR> 20000 x 9.00 = 180000<BR>std qty (2.5kg x actual units produced 7620) <BR>19050 x std price £9 = 171450 <BR>gives a usage variance of 8550 A<BR><BR>Hope this helps?<BR>Any further queries, please mail me and I will try to help, although I am only currently studying this at the moment and am not a wizard!! lol<BR>paula_w77@hotmail.com

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