# MDC- Sample assessment 2 Question 2

Sample assessment 2 Question 2 - Variances

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

Thanks

• Standard material cost of production-
£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!
• Do you know how to work out the Expenditure of 0 and efficiency of 210?
• Sure Standard 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.

£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!

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
• Thank you, this is complete change of questions but do you understand how to work out thhe absorption and marginal costing I will attach picture of a question if possible

• Thank you, this is complete change of questions but do you understand how to work out thhe absorption and marginal costing I will attach picture of a question if possible

• @Sineadp yes just attach a picture or tell me which question it is. I've got access to Osborne book questions if it's from there
Happy to help
• It is in the Osborne workbooks Practice assessment 1,2 & 3 all task 4.

Thank you
• Also do you know any key things to help with the written questions. Thank you
• MDCL Osborne Workbook - Practice Assessment 1 Task 4

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?