A company's master budget indicated that 50,000 units of finished goods should be produced using 25,000 feet of materials at $4 per foot. The company actually produced 48,000 units of finished goods, purchased 27,000 feet of materials at $4.25 per foot, and used 25,000 feet of materials in production. The direct material efficiency variance is
*Source: Retired ICMA CMA Exam Questions.
$0.
$4,000 unfavorable.$6,000 unfavorable.
$8,000 unfavorable.
This answer is incorrect. Material efficiency variance = standard price × (actual quantity of material used – standard quantity of material allowed for actual production volume)
Material efficiency variance = $4×( 25,000 −(.5× 48,000))
Material efficiency variance = $4 ×1,000
Material efficiency variance= $4,000 unfavorable
It is an unfavorable variance because more material was used than the standard quantity of material allowed for actual production. The standard quantity allowed was calculated by determining the budgeted quantity per unit, (25,000 ft./50,000 units) = .5
In the above question.... the budgeted quantity used in 25000 mentioned in sentence 1. Next, as you read further, 25000 is again mentioned that it was the quantity that was actually used.
Since, one of the options is 0. However, that is wrong because it is supposed to be solved as provided above.
Can someone help as to why 4* (25000- 25000) is not the correct way to solve this question.
SP*(Quantity Used- Standard Quantity allowed)
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Sanobar Anjum
Pickering ON
Canada
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