ExpertMedium2 marksShort Answer
ACCA · Question 26 · Standard Costing
A food processing company has a standard material requirement of 10 kg of raw ingredients to produce 1 batch of output. The standard price is $2 per kg.
During the period, 10,500 kg of raw ingredients were used to produce 1,000 batches.
Calculate the material usage variance. State your answer as a number followed by 'F' for Favorable or 'A' for Adverse (e.g., 500 A).
A food processing company has a standard material requirement of 10 kg of raw ingredients to produce 1 batch of output. The standard price is $2 per kg.
During the period, 10,500 kg of raw ingredients were used to produce 1,000 batches.
Calculate the material usage variance. State your answer as a number followed by 'F' for Favorable or 'A' for Adverse (e.g., 500 A).
How to approach this question
1. Calculate standard quantity for actual production (Actual batches * Std kg per batch). 2. Compare to actual quantity used. 3. Multiply the difference by the standard price per kg.
Full Answer
Standard quantity for actual production = 1,000 batches × 10 kg = 10,000 kg.
Actual quantity used = 10,500 kg.
Difference = 500 kg more than standard (Adverse).
Material usage variance = 500 kg × $2/kg = $1,000 Adverse.
Common mistakes
Calculating the variance in kg (500) without multiplying by the standard price, or getting the direction wrong.
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