[flop310]

Hello,

I am having trouble understanding the solution to this question. I dont understand why Ending inventory was used to find the answer

A company manufactures a product that has the direct material standard cost presented below. Budgeted and actual information for the current month for the manufacture of the finished product and the purchase and use of the direct material are also presented.

Standard cost for direct material

1.60 lb @ $2.50 per lb. = $4.00

Budget Actual

Finished good in units 30,000 32,000

Direct material usage in pounds 48,000 51,000

Direct material purchases 48,000 50,000

Total cost of DM purchases $120,000 $120,000

The material usage variance is

A. $500 favorable.

B. $3,000 favorable.

C. $7,500 unfavorable.

D. $8,000 unfavorable.

Answer A is correct. This alternative correctly calculates the direct material efficiency (usage) variance as the difference between the standard pounds allowed for the actual units produced (32,000 × 1.60 = 51,200) and the actual pounds used (51,000) times the standard price ($2.50).

Thank you!!

[Anonymous]

I just came across this question also. Your confusion is well founded… as this stumped me also but it makes sense. You use your Standard Quantity allowed which in this case would be 1.60 lbs per unit x your actual quantity produced 32,000.

That gives you the 51,200 budgeted based on actual output.

Plug in your variables:

51,200-50,000 x 2.50= 500 Favorable

Always remember to use your standard quantity allowed based on your actual output for your standard usage and than the actual was given information in this question but if they had simply given your actual usage per unity you would use the same concept (quantity produced x actual usage per unit).

Hope that makes some sense.

[flop310]

Thanks for the explanation!

[flop310]

Thanks for the explanation!

[Author]

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