Page 109 - P1 Integrated Workbook STUDENT 2018

Variance analysis

Example 3

Jayco budgets to make 1,000 boxes of plugs. An investigation into material
costs discovered the following:

Budgeted foam material used per box = 0.2 kgs @ $50 per kg)

Total budget material cost = $10,000

Actual material costs to make 1,100 units:

Material purchased and used 192.5 kgs costing $10,587.50

Calculate the materials price and quantity variances.

Solution

Materials price variance

(SP – AP) × AQp (actual quantity purchased)

SP = $50 per kg

AP = $10,587.50/192.5 kgs = $55 per kg

AQp = 192.5 kgs

Variance = ($50 – $55) × 192.5 = $962.50 Adverse

Materials usage variance

(SQ – AQu) × SP

SQ = 0.2 kgs per unit × 1,100 units = 220 kgs

AQu (actual quantity used) = 197.5 kgs

SP = $50 per kg

Variance = (220 – 197.5) × $50 = $1,125 Favourable

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