Hi Tayba,
Budget:
300,000 units of finished goods.
product unit need 150,000 pounds of material as total = 150,000/300,000= 0.50 material per unit (Budget)
Actual:
310,000 units of finished goods = 0.48 material per unit (Actual)
310,000 * 0.48 = 148,800 (actual material as total)
to calculate t he efficiency variance :
{(Actual finished goods units* standard material per unit) - (Actual finished goods units * actual material per unit)} * standard price=
{(310,000 * 0.50) - (310,000* 0.48)} * 0.75=
{(155,000 - 148,800)} * 0.75=
6200 * 0.75= 4,650
Why 4,650 is favorable?
because the actual material per unit is less than the standard material per unit.
0.48 is less than 0.50 or 148,800 is less that 155,000
and therefore, there is some savings regarding the actual material than the planned budget material.
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Ahmed Zolfakar
Director/Manager
Giza
Egypt
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Original Message:
Sent: 05-23-2022 02:06 PM
From: Tayba Al-Mehdar
Subject: DIRECT MATERIAL VARIANCE HELP
I Want to understand why they didn't use the 150,000 as the standard quantity
| A company established its annual direct material budget to produce 300,000 units as follows. 150,000 pounds of material at $0.75 per pound = $112,500 Throughout the year, the company produced 310,000 units of finished goods using 0.48 pounds per unit at a cost of $0.76 per pound. The direct material efficiency variance is | | | | | | | Answer (B) is correct. The direct material efficiency variance equals the standard quantity minus the actual quantity, times standard price. For a production level of 310,000, the direct materials needed equals 155,000 pounds [310,000 × (150,000 ÷ 300,000)], and materials actually used was 148,800 pounds (310,000 × 0.48). Thus, the variance is $4,650 favorable {SP × (AQ – SQ) = [$0.75 × (148,800 – 155,000)]}. |
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Tayba Al-Mehdar
Controller
Khobar
Saudi Arabia
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