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 3,600 helmets, using 2,052 kilograms of plastic. The plastic cost the company $15,595. According to the standard cost card, each helmet should require 0.51 kilograms of plastic, at a cost of $8.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,600 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 3,600 helmets?

3. What is the materials spending variance?

4. What is the materials price variance and the materials quantity variance?

Answer 1

1	SQ that is allowed to make 3,600 helmets=Number of helmets produced*Kg of plasic required per helmet=3600*0.51=$ 1836
2	Standard materials cost allowed =(SQ × SP)=1836*8=$ 14688
3	Materials spending variance=Standard materials cost allowed-Actual material cost
	If the answer is positive, variance is favorable.Otherwise,unfavorable
	Materials spending variance=14688-15595=-907=$ 907 Unfavorable
4	Materials price variance=AQ*(SP-AP)
	If the answer is positive, variance is favorable.Otherwise,unfavorable
	AQ=2052 Kg.
	SP=$8 per Kg.
	AP=Actual cost of material/AQ=15595/2052=7.60
	Materials price variance=2052*(8-7.60)=821=$ 821 Favorable
	Materials quantity variance=SP*(SQ-AQ)
	If the answer is positive, variance is favorable.Otherwise,unfavorable
	SP=$8 per Kg.
	SQ=1836 Kg.
	AQ=2052 Kg.
	Materials quantity variance=8*(1836-2052)=-1728=$ 1728 unfavorable