pev- variences when materials purchased are not all used???

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
hi,
im just panicking now. Ive read on an earlier thread something about purchases being 60,000kg but only 58,000kg were issued to make the product. I read the whole thread but dont understand and havent come across this before. What would you do?? :?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    Don't panic... It's completely understandable why you're confused.

    When you have a situation where not all of what you have purchased has been used, you simply calculate your variance on what has been used.

    In the mock on which the previous thread was based, 60,000 metres of material was purchased at a price of £150,000 (this would equal £2.50 per metre). Actual quantity of Material A used is 58,000 metres

    As said before, your variance is calculated on what you used i.e.

    58,000 x 2.50 = £145,000

    Note: you would use the total kg purchase amount to calculate what your price per unit would be - I think this is where students might get confused i.e. using £150,000/58000m

    You would always calculate your variance on what has been used (and the majority of the time, you may find that the questions states "x amount of material was bought and used at a price of £x"

    I hope this helps!

    Good luck!!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    Only like 12 hrs left but from what i understand, is the below right???


    In material price variance, its: Actual Quantity (60000) * Act Rate - Actual Quantity * Std Rate.

    And material usuage variance, its: Used Quantity (58000) * Std Rate - Flexed Quantity * Std Rate
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    Nope... it's as follows (of course if you haven't done the question, you might not know where some of the figures come from):


    Price Variance
    Actual Quantity x Actual Price
    58,000 x (150,000 / 60,000) = 145,000

    Less:

    Actual Quantity x Standard Price
    58,000 x £2 = £116,000

    Variance is £29,000 Adverse

    Usage Variance

    Actual Quantity x Standard Price
    58,000 x £2 = £116,000

    Less:

    Standard Usage for actual production x Standard Price
    56,000 x £2 = £112,000

    Variance is £4000 Adverse

    Of course, I appreciate that you may have learned this in a completely different format but the results still come out the same.

    The only reason you would ever use the actual purchased amount (if different from the usage amount) is when you're calculating the cost per unit.

    I hope this clarifies your query!?

    Good luck
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    right thanks ill remember that. But then do i change the actual cost to what it is for the amount used?? i.e say bought 60,0000 for £100,000 so would i do 100,000/60000 * 58000?? for the actual cost?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    Thanks, i thought until now that in price variance you use the full purchased quantity and in usuage the used quantity.
    Your calculations clearly showed i was wrong!! Thank god i know about it now rather than tomorrow.

    So, what would happen to the 2,000 remaining, would it go in closing stock at the std. rate?

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    Laurajane - you're absolutely correct. Whatever you actually paid for how ever many units, you would need to calculate how much each unit cost i.e using your example:
    I purchased 60000 units at £100,000. Price per unit is £1.67 (£100,000/60000) therefore, actual total price of total units used = 1.67 x 58,000 = £96,860

    Uday - Unfortunately, if you were taught as we were i.e. using questions that had total units purchased and used being the same figure, then I suppose you would have continued to think that it's just the purchase figure you used.

    I suppose the thing to bear in mind here is that your variances are based on production i.e. how much material was used to produce x amount of units and how cheap/expensive were those used units compared to what we budgeted for, how efficient were our employees using those units etc etc.

    So in answer to your question regarding what happens to the remaining units - they'd be used in clsoing but at the rate you purchased them at.

    We've never dealt with closing stocks for PEV only in PCR when you use Production budgets.... don't get mixed up now!

    Hope this helps!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    thanks im really worried now i thought id revised lots but i havent got a clue ivw just looked through dec 03 paper i must of missed doing that one and wouldnt know where to start!
    im really worried about all the therory questions. Oh well logging off now need to get everything ready for tomorrow dont think ill sleep well : (
    good luck.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    LauraJane

    You'll be absoluetly fine. You've understood this post and so long as you put everything into a business perspective you'll do well!

    Sleep well, and good luck!!!!

    Shona
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:pev- variences when materials purchased are not all used???

    Thanks for the help. I thought i was good in variances, well we'll see how it goes tomorrow. Will probably read through a few questions now like the example you just gave to clarify it for myself, was going to read memo's,etc now...hmmmm...i think will skim through that quickly and right whatever i feel right tomorrow!! The stress levels are getting raised quite rapidly!!!
    Thanks for the help

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