[KarenMcCourt]

Help needed, please. Can someone explain to me why this solution uses the 3,000 radios actually manufactured when calculating the standard (budgeted) quantity produced? I’m obviously missing something on this one.

Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit. During May Year 1, Blaster experienced the following with respect to part XBEZ52.
Units
Purchases ($18,000)
12,000
Consumed in manufacturing
10,000
Radios manufactured
3,000
During May Year 1, Blaster, Inc. incurred a material efficiency variance of:
a.
$4,350 favorable.
b.
$1,450 favorable.
c.
$1,450 unfavorable.
d.
$4,350 unfavorable.
Explanation
Choice “c” is correct. $1,450 unfavorable material efficiency variance.
Solution:
(actual units – STD units) x STD unit price
(10,000 given – 9,000 ) x $1.45

Does this assume 3 units of DM per radio times 3,000 radios actually manufactured? Thanks!

[jms10101]

DM Efficiency formula is

Standard Rate X(Actual Qty used-Standard Qty allowed)

$1.45 X (10000-9000)

$1.45 X 1000

1,450 Unfavorable.

3 units is the standard per radio so for 3,000 radios there should only have been 9,000 units used. There were actually 10,000 units used, difference of 1,000 overuse (unfavorable). $1.45 standard rate multiplied by 1,000 units is the variance.

[MiraMouse]

The budget says you can create 1 radio with 3 of the part. The budget is 3/radio, not the 3000 radios. Therefore the budget was 9,000 parts for the 3,000 radios but they used 10,000 parts for 3,000 radios. So, they're over budget by 1,000 parts x $1.45/part.

Does that help?

AUD - 99!
FAR - 08/2016
REG - 10/2016
BEC - 12/2016

[KarenMcCourt]

Thanks (many, many thanks!) to both jms10101 and MiraMouse. Your explanations helped to clear up how the 9,000 STD radios was calculated. I completely forgot that variance analysis builds on the “what if” concept. I expected to see a budgeted production amount and didn't remember that we need to apply actual activity to our standard (or expected) rate – in order to correctly compare apples to apples. It's so easy to get bogged down in BEC with formulas and concepts so I really appreciate your help in explaining this one.

[jms10101]

Glad ot help Karen…good luck. I am testing BEC next week.

[KarenMcCourt]

Good luck to you next week. I'm sure you'll be happy to be finished with these exams. Congrats in advance!

[Author]

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