ExpertHard10 marksStructured
ACCA · Question 37 · Standard costing
SECTION B - MULTI-TASK QUESTION 2 (STANDARD COSTING)
Scenario: AeroParts Inc manufactures specialized titanium components for the aerospace industry. The standard cost card for one component (Component T) is as follows:
- Material A: 3 kg at $40 per kg
- Material B: 2 kg at $50 per kg
- Direct Labor: 4 hours at $25 per hour
During October, AeroParts produced 1,000 units of Component T. The actual results were:
- Material A used: 3,200 kg costing $131,200
- Material B used: 1,900 kg costing $91,200
- Direct Labor: 4,100 hours costing $106,600
Answer the following 5 sub-questions (2 marks each):
- Calculate the total material price variance for Material A.
- Calculate the material usage variance for Material B.
- Calculate the direct labor rate variance.
- Calculate the direct labor efficiency variance.
- If a global shortage caused the market price of Material A to rise to $42 per kg before the period started, what would be the material planning price variance for the actual quantity purchased?
SECTION B - MULTI-TASK QUESTION 2 (STANDARD COSTING)
Scenario: AeroParts Inc manufactures specialized titanium components for the aerospace industry. The standard cost card for one component (Component T) is as follows:
- Material A: 3 kg at $40 per kg
- Material B: 2 kg at $50 per kg
- Direct Labor: 4 hours at $25 per hour
During October, AeroParts produced 1,000 units of Component T. The actual results were:
- Material A used: 3,200 kg costing $131,200
- Material B used: 1,900 kg costing $91,200
- Direct Labor: 4,100 hours costing $106,600
Answer the following 5 sub-questions (2 marks each):
- Calculate the total material price variance for Material A.
- Calculate the material usage variance for Material B.
- Calculate the direct labor rate variance.
- Calculate the direct labor efficiency variance.
- If a global shortage caused the market price of Material A to rise to $42 per kg before the period started, what would be the material planning price variance for the actual quantity purchased?
How to approach this question
Use standard variance formulas. Price variance = (Std Price - Act Price) * Act Qty. Usage variance = (Std Qty - Act Qty) * Std Price. Rate variance = (Std Rate - Act Rate) * Act Hours. Efficiency variance = (Std Hours - Act Hours) * Std Rate. Planning variance = (Original Std Price - Revised Std Price) * Act Qty.
Full Answer
1. Mat A Price Variance: Actual cost = $131,200. Standard cost of actual qty = 3,200 * $40 = $128,000. Variance = $3,200 Adverse.
2. Mat B Usage Variance: Standard qty for 1,000 units = 2,000 kg. Actual qty = 1,900 kg. Difference = 100 kg Favorable. Variance = 100 * $50 = $5,000 Favorable.
3. Labor Rate Variance: Actual cost = $106,600. Standard cost of actual hours = 4,100 * $25 = $102,500. Variance = $4,100 Adverse.
4. Labor Efficiency Variance: Standard hours for 1,000 units = 4,000 hrs. Actual hours = 4,100 hrs. Difference = 100 hrs Adverse. Variance = 100 * $25 = $2,500 Adverse.
5. Planning Price Variance: (Original Std Price $40 - Revised Std Price $42) * Actual Qty 3,200 = $2 * 3,200 = $6,400 Adverse.
Common mistakes
Mixing up standard and actual quantities when calculating price variances.
Practice the full ACCA MA — Management Accounting Practice Exam 2
38 questions · hints · full answers · grading
More questions from this exam
Q01SECTION A
NovaTech, a cloud software startup, pays a monthly server hosting fee of $5,000 which ...EasyQ02A multinational healthcare provider is deciding whether to acquire a smaller regional hospital ne...EasyQ03A public utility company wants to survey its customers regarding a new pricing structure. The cus...MediumQ04A global logistics firm is implementing a Big Data strategy to optimize its shipping routes.
Wh...MediumQ05The manager of a regional branch of a retail franchise has the authority to set local selling pri...Easy