Question

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,700 helmets, using 2,368 kilograms of plastic. The plastic cost the company $17,997.

According to the standard cost card, each helmet should require 0.54 kilograms of plastic, at a cost of $8.00 per kilogram.

Required:
1.	According to the standards, what cost for plastic should have been incurred to make 3,700 helmets? How much greater or less is this than the cost that was incurred? (Round Standard kilograms of plastic per helmet to 2 decimal places.)
2.	Break down the difference computed in (1) above into a materials price variance and a materials quantity variance. (Round your actual materials price to two decimal places, and round your final answers to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

• Working

1	Standard quantity allowed	0.54	x	3700	=	1998	kgs
2	Standard cost allowed	1998	x	$       8.00	=	$ 15,984.00

• Requirement 1:
  Cost that should have been incurred = $ 15,984 Answer
  Actual Cost = $ 17,997
  Hence, The cost that should have been incurred is actually LESS than actually incurred by $ 2013 Answer
• Requirement 2

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                                8.00	-	$                       7.60	)	x	2368
	947
	Variance		$                  947.00			Favourable-F

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	1998	-	2368	)	x	$                           8.00
	-2960
	Variance		$              2,960.00			Unfavourable-U