ExpertMedium2 marksMultiple Choice
ACCA · Question 21 · Budgeting and Control
Section B - Case 2: Verdant Yields
Verdant Yields produces organic liquid fertilizer by blending two materials: Nitrogen-rich (N) and Phosphorus-rich (P).
Standard data to produce 10 liters of fertilizer:
Material N: 8 liters at $5 per liter
Material P: 4 liters at $10 per liter
(Total standard input = 12 liters. Standard cost = $80).
Actual data for the month:
Output produced: 950 liters of fertilizer.
Material N purchased and used: 840 liters at $4.80 per liter.
Material P purchased and used: 360 liters at $10.50 per liter.
What is the Total Material Price Variance for the month?
Section B - Case 2: Verdant Yields
Verdant Yields produces organic liquid fertilizer by blending two materials: Nitrogen-rich (N) and Phosphorus-rich (P).
Standard data to produce 10 liters of fertilizer:
Material N: 8 liters at $5 per liter
Material P: 4 liters at $10 per liter
(Total standard input = 12 liters. Standard cost = $80).
Actual data for the month:
Output produced: 950 liters of fertilizer.
Material N purchased and used: 840 liters at $4.80 per liter.
Material P purchased and used: 360 liters at $10.50 per liter.
What is the Total Material Price Variance for the month?
Answer options:
A.
$12.00 Favorable
B.
$12.00 Adverse
C.
$168.00 Favorable
D.
$180.00 Adverse
How to approach this question
Price Variance = (Standard Price - Actual Price) * Actual Quantity. Calculate for N and P separately, then net them together.
Full Answer
B.$12.00 Adverse✓ Correct
Material N Price Variance = (SP - AP) * AQ = ($5.00 - $4.80) * 840 = $168 Favorable.
Material P Price Variance = (SP - AP) * AQ = ($10.00 - $10.50) * 360 = $180 Adverse.
Total Material Price Variance = $168 F - $180 A = $12 Adverse.
Common mistakes
Multiplying the price difference by the standard quantity instead of the actual quantity purchased.
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