ACCA Applied Knowledge · Management Accounting · Standard costing system
Marlow Co has a standard direct material cost of 4 kg per unit at $5 per kg. In March it produced 2,000 units and used 8,400 kg of material, which cost $40,320. What is the direct material usage variance?
The direct material usage variance is $2,000 adverse. Standard usage for 2,000 units is 8,000 kg but 8,400 kg were used, an excess of 400 kg. Valued at the standard price of $5 per kg, this gives $2,000 adverse.
- A$2,000 adverseCorrect
- B$2,000 favourable
- C$2,320 adverse
- D$1,920 adverse
Explanation
Standard usage for 2,000 units = 8,000 kg. Actual usage = 8,400 kg, so 400 kg excess valued at the standard price of $5 gives $2,000 adverse. Using the actual price of $4.80 would give $1,920, which is wrong because the usage variance uses standard price.
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