Question

Bandar Industries Berhad of Malaysia manufactures sports equipment. One of the company's products, a football helmet for the US market requires a special plastic. In the quarter that ended on June 30, the company manufactured 35,000 helmets with 22500 kilos of plastic. The plastic costs the company $ 171,000. According to the standard cost sheet, each helmet must carry 0.6 kilos of plastic, at a cost of eight units per kilo. Question 1a. Determine the cost that must have been incurred to manufacture 35,000 helmets (TOTAL STANDARD COST). Question 1b. Determine how much higher or lower the total standard cost is than the actual cost incurred (TOTAL VARIATION). Question 2. Breakdown total variation of materials between the price change of materials and variation in the amount of materials

Answer 1

• All working forms part of the answer
• Requirement 1 ‘a’

Standard DATA for		35000	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 0.6 feet x 35000 units)=21000 feet	$                   8.00	$     168,000.00

Answer: The cost that must have been incurred = $ 168,000

• Requirement 1 ‘b’

Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$           168,000.00	-	$          171,000.00	)
	-3000
	Variance		$              3,000.00			Unfavourable-U

Answer: The Standard cost is LOWER than Actual cost by $ 3,000.

• Requirement 2

---Total Variation due to Price change

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        8.00	-	$                       7.60	)	x	22500
	9000
	Variance		$              9,000.00			Favourable-F

Answer = $ 9,000 Favourable

---Total Variation due to amount of materials

Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	21000	-	22500	)	x	$                           8.00
	-12000
	Variance		$            12,000.00			Unfavourable-U

Answer = $ 12,000 Unfavourable