[Saad Ahmed]

I have a Managerial Accounting exam today and u can't seem to understand this question.

I have to calculate Total direct material cost variance from the following information...

Budgeted Direct material 4kgs @£8 per Kg
Budgeted Production units 2000 per year
Actual Direct material 19000 Kgs @£121000
Actual production units 5000 per year.

Can I please have a detailed solution for this. Thanks a lot.

[jerileycpa]

Not sure how you did on your exam but giving you the detailed solution wouldn't have been the right thing to do. If you're going to be a good accountant, you need to learn this stuff. And learning from mistakes is OK.

That being said, let's examine the question: if the company is expecting to produce 2000 units and it takes 4 kgs of materials per unit at a cost of 8 pounds per kgs to make them, what is the cost per unit to make? And what is the total cost for 2000 units?

Now it's the end of the year and the company spent 121,000 pounds to purchase 19,000 kgs of materials. What was the cost per kg for materials? And if they used 19,000 kgs to produce 5000 units, what was the material usage per unit? Can you see the variances now? I'd say the company did pretty good.

[paraclete]

In any cost accounting problem we have various variances. There are price variances, there are usage variances and there are volume variances. You need to become familiar with these and the terms standard and actual