Question

The standard cost card for a product indicates that one unit of the product requires 8 kilograms of a raw material at $0.80 per kilogram. The production of the product in April was 870 units, but production had been budgeted for 850 units. During April, 8,200 kilograms of the raw material were purchased for $6,888 and 7,150 kilograms of the raw material were used in production. The material variances for April were:_________

a. 286U
b. 328U
c. None of the above
d. No answer text provided.

Answer 1

Answer: a. 286U

Step-by-step explanation:

When calculating Variance, we are essentially checking for the difference between the budgeted amount for something and the actual amount.

If the Budgeted amount is more than the actual amount, the Variance is considered FAVOURABLE. The reverse is true.

In calculating the Material Price Variance we can use the following formula,

Material Price Variance = (Standard Price-Actual price)*Actual Quantity

Actual Price = 6,888/8,200

= 0.84

Material Price Variance = ( 0.80 - 0.84) * 7,150

Material Price Variance = -$286

This shows that the material variances for April was $286 more than the budget meaning that it was UNFAVOURABLE. Option A is correct.