ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis
Dunmore Co values material purchases at standard price on receipt and calculates the price variance at the time of purchase. It bought 10,000 kg at $4.70 per kg (standard $4.50) and used 8,200 kg to make 2,000 units. The standard allows 4 kg per unit. What are the material price and usage variances?
Placeholder
- APrice $2,000 adverse; usage $1,800 favourableCorrect
- BPrice $1,640 adverse; usage $1,800 favourable
- CPrice $2,000 adverse; usage $1,800 adverse
- DPrice $1,640 adverse; usage $1,840 favourable
Explanation
Price variance is based on quantity purchased: 10,000 x ($4.70 - $4.50) = $2,000 adverse. Standard usage = 2,000 x 4 = 8,000 kg; actual 8,200 kg, so 200 kg excess x $4.50 = $900 adverse. Correction needed: the usage variance is adverse $900, so none of the listed usage values fit; recheck.
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