CMA Study Group

1C Raw material price variance

  • 1.  1C Raw material price variance

    Posted 06-21-2021 10:11 AM
    Hi everyone,
    The question requires the Raw material price variance, I calculate it with the formula 
    image.png
    490,000 × ($2.02 − 2) = $9,800 Unfavorable

    The solution actually calculates the Purchased raw material price variance as follow:
      500,000 × ($2.02 − 2) = $10,00 Unfavorable  

    Could anyone please help me explain its solution?

    Thank you in advance,

    image.png
    image.png


  • 2.  RE: 1C Raw material price variance

    Posted 06-22-2021 01:55 AM
    Hi Phuc,

    Kindly keep in mind when you are calculating material price variance, it doesn't matter how much material you used for production but material purchased matters.
    (Standard rate-actual rate) X Actual quantity purchased is a right formulae.

    Material price variance is to be calculated keeping in mind company's purchase department who are responsible for the rates.
    But when calculating Material usage variance, you should keep in mind company's production department who are responsible for variances in production, using formulae (Standard Material used-Actual Material Used) X Standard rate.

    Final Conclusion-------Material Purchased is for Material Price variance and Material used for production is for Material Usage Variance.
    Get back to me, if you still have a doubt.

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    Tejas Doke
    Accountant
    Dombivli MH
    India
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  • 3.  RE: 1C Raw material price variance

    Posted 06-23-2021 03:03 AM
    I believe this approach is taken only because of the words ".....provide the earliest possible informations......"

    If that line was not there, price variance would be on actual material used, not purchased.





  • 4.  RE: 1C Raw material price variance

    Posted 06-26-2021 02:17 AM
    Thank you all for your help,

    After further research, I figure out that the explanation of Mr. Gaffar is the most likely to be correct

    In short, it will be the Purchase price variance they ask us to calculate if there is a line like "to know the price variance as soon/ early as possible"

    "Direct material purchase price variance is used when the company decide to know DM price variance as soon as possible

    If an exam question is about the purchase price variance, the information given in the question will make it clear that the question is asking for the purchase price variance. the question may say that a company recognizes materials variances as early as possible. That is an indication the question is asking for the purchase price variance"


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    Phuc
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