Skip to content

ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

The standard price of material is $4.00 per kg. During the month, Ridley Ltd purchased 5,000 kg at a total cost of $21,500 and used 4,200 kg in production. The material price variance, calculated on purchases, is:

The material price variance is $1,500 adverse. Actual cost of 5,000 kg purchased was $21,500, while the standard cost of that quantity is $20,000. Spending more than standard is adverse. Calculating it on the 4,200 kg used would be incorrect here.

  1. A$1,500 adverseCorrect
  2. B$1,500 favourable
  3. C$1,260 adverse
  4. D$21,500 adverse

Explanation

Actual purchases cost $21,500. The same quantity at standard would cost 5,000 x $4.00 = $20,000. The difference is $1,500, and it is adverse because actual cost is higher. Using the 4,200 kg used gives $1,260, which is wrong because the price variance is based on the quantity purchased.

Did you get it right without looking?

One question tells you little. A timed set on Variance calculations and analysis shows your real accuracy, how long you take and where you lose marks.

Practise Variance calculations and analysisFree diagnostic mock

More Variance calculations and analysis questions