ACCA Applied Knowledge · Management Accounting · Standard costing system
Dunmore Ltd has a standard of 3 kg of material per unit at $5 per kg. In March it produced 2,000 units and used 6,300 kg of material, which cost $30,870. What is the material usage variance?
The material usage variance is $1,500 adverse. Standard usage for 2,000 units is 6,000 kg, but 6,300 kg were used, an excess of 300 kg. Valued at the standard price of $5 per kg, this gives $1,500, adverse because more material was used than allowed.
- A$1,500 adverseCorrect
- B$1,500 favourable
- C$870 adverse
- D$1,470 adverse
Explanation
Standard usage for 2,000 units = 6,000 kg. Actual usage 6,300 kg, so 300 kg excess x $5 standard price = $1,500 adverse. The price variance is a different calculation: 6,300 x $5 = $31,500 versus $30,870 actual, giving $630 favourable, not relevant here.
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