ACCA Applied Skills · Performance Management · Standard costing
Norwood Co set a standard of 3 kg of material per unit at $10 per kg. After a supplier problem, the ex-post (revised) price was $12 per kg. Actual price paid was $12.50 per kg. For 1,000 kg purchased, what is the operational material price variance?
The operational material price variance is $500 adverse, because the actual price of $12.50 exceeded the revised standard of $12.00 by $0.50 per kg on 1,000 kg. The move from $10 to $12 is a planning variance.
- A$500 adverseCorrect
- B$2,000 adverse
- C$2,500 adverse
- D$500 favourable
Explanation
Operational price variance compares actual price with the revised standard: 1,000 x ($12.50 - $12.00) = $500 adverse. The $2,000 adverse is the planning variance (1,000 x ($12 - $10)), and $2,500 is the total price variance.
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