ExpertMedium2 marksShort Answer
ACCA · Question 25 · Budgeting and control
Section B - Case 2: GreenYield Agri
GreenYield Agri produces 'CropBoost', a specialized liquid fertilizer. The standard mix for 10,000 liters of input is:
- Chemical A: 6,000 liters at $10 per liter
- Chemical B: 4,000 liters at $15 per liter
During May, a global shortage caused the market price of Chemical A to unexpectedly rise to $12 per liter (this is the revised standard). The purchasing manager actually bought the 7,000 liters of Chemical A used in May for $11.50 per liter.
Calculate the operational material price variance for Chemical A for May. (Enter your answer as a positive number followed by F or A, e.g., 3500 F or 3500 A)
Section B - Case 2: GreenYield Agri
GreenYield Agri produces 'CropBoost', a specialized liquid fertilizer. The standard mix for 10,000 liters of input is:
- Chemical A: 6,000 liters at $10 per liter
- Chemical B: 4,000 liters at $15 per liter
During May, a global shortage caused the market price of Chemical A to unexpectedly rise to $12 per liter (this is the revised standard). The purchasing manager actually bought the 7,000 liters of Chemical A used in May for $11.50 per liter.
Calculate the operational material price variance for Chemical A for May. (Enter your answer as a positive number followed by F or A, e.g., 3500 F or 3500 A)
How to approach this question
Operational Price Variance = (Revised Standard Price - Actual Price) * Actual Quantity.
Full Answer
Operational Price Variance compares the Actual Price to the Revised Standard Price.
Revised Standard Price = $12.00.
Actual Price = $11.50.
Difference = $0.50 Favorable per liter.
Actual Quantity = 7,000 liters.
Variance = 7,000 * $0.50 = $3,500 Favorable.
Common mistakes
Comparing the actual price to the original standard price ($10), which would give a $10,500 Adverse total price variance.
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