ExpertMedium2 marksShort Answer
ACCA · Question 24 · Syllabus E: Standard costing
A biofuel refinery has a standard material requirement of 10 liters of raw algae per gallon of biofuel produced, at a standard cost of $2 per liter.
During the month, the refinery produced 5,000 gallons of biofuel and actually used 52,000 liters of raw algae.
Calculate the Material Usage Variance. (Enter as a positive number followed by A for Adverse or F for Favorable, e.g., 4000A or 4000F)
A biofuel refinery has a standard material requirement of 10 liters of raw algae per gallon of biofuel produced, at a standard cost of $2 per liter.
During the month, the refinery produced 5,000 gallons of biofuel and actually used 52,000 liters of raw algae.
Calculate the Material Usage Variance. (Enter as a positive number followed by A for Adverse or F for Favorable, e.g., 4000A or 4000F)
How to approach this question
Calculate Standard Quantity for actual production. Compare to Actual Quantity used. Multiply the difference by the Standard Price.
Full Answer
Standard Quantity (SQ) for actual production = 5,000 gallons × 10 liters = 50,000 liters.
Actual Quantity (AQ) used = 52,000 liters.
Material Usage Variance = (SQ - AQ) × Standard Price
Variance = (50,000 - 52,000) × $2 = -2,000 × $2 = -$4,000.
Since they used 2,000 liters MORE than standard, the variance is Adverse (4000A).
Common mistakes
Multiplying by the actual price instead of the standard price, or getting the A/F direction wrong.
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