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 3,200 helmets, using 2,080 kilograms of plastic. The plastic cost the company $13,728.

According to the standard cost card, each helmet should require 0.59 kilograms of plastic, at a cost of $7.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,200 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 3,200 helmets?

3. What is the materials spending variance?

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

Answer 1

Solution:

1) Standard quantity of kilograms = number of helmets * Standard kilogram of plastic per helmet

                                                 = 3,200 * 0.59

                                                 = 1,888

2) Standard materials cost allowed = Standard quantity of kilograms * standard cost per kilogram

                                                   = 1,888 * 7

                                                   = 13,216

3) Material spending variance = Actual cost incurred - Total standard cost

                                           = 13,728 - 13,216

                                           = 512

4) Material price variance = Actual materials *(Actual rate - standard rate)

                                     = 2,080 *(13,728/2,080 - 7) = $ 832 (Favorable)

    Material Quantity variance

       = Standard rate * (Actual material used - Standard material allowed for actual production)

= 7 * (2,080- 0.59 * 3,200) = $ 1,344 (Unfavorable)