Question

ABC company are considering to makes a new product, which is a new paper bottle. Now, we have following standards: 427 million bottles produced and $5.52 per 1,000 ozs of paper. They expected to cost $181144 in paper. Hoever, they realize that the company actually produced 505 million cans and used 36 million ozs of paper at the end of the year, and Paper cost the firm $247901.

1. Find Actual Usage of input per unit of output (Ua=? oz / unit. )

2. Find Actual Price per unit of input (P_a = ? $/oz.)

3. Find Budgeted Usage of input per unit of output (U_b = ? oz / unit)

4.Paper price variance

5.Is the above variance favorable or unfavorable?

6.Paper efficiency variance

7.Is the above variance favorable or unfavorable?

Answer 1

1. Actual Usage of input per unit of output

Actual Usage of input per unit of output = Actual number of paper(ozs) / Actual number of cans

= 36 million / 505 million

= .071287128 Ozs of paper per unit

2. Actual Price per unit of input

Actual Price per unit of input = Actual cost / Actual number of paper(ozs)

= $247,901 / 36,000,000

= $.006886138 per ozs

3. Budgeted Usage of input per unit of output

Budgeted Usage of input per unit of output = Budgeted number of paper(ozs) / Budgeted number of cans

Budgeted number of paper(ozs) = $181,144 / 5.52 ×1000

Budgeted number of paper(ozs) = 32815942 ozs of paper

Budgeted number of cans = 427 million

Therefore,

Budgeted Usage of input per unit of output = 32815942 / 427,000,000

= .076852323

4. Paper price variance

Paper price variance = Actual price - standard price × actual quantity

Standard price per ozs = $5.52 / 1000 = .00552

= ($.006886138 - $.00552) × 36,000,000

= .001366138 × 36,000,000

= $49181

5.) unfavorable

6.) Paper efficiency variance

Paper efficiency variance = (Actual quantity - Standard quantity) × standard price

Standard quantity = 505,000,000 × .076852323 = 38810423.11

Therefore,

Paper efficiency variance = (36,000,000 - 38810423) × .00552

= $15,514

7. Favorable