Wiley wrong?

  • Creator
    Topic
  • #184001
    Anonymous
    Inactive

    Wiley Question –

    A company manufactures a product that has the direct material standard cost presented below. Budged and actual information for the current month for the manufacturer of the finished product and the purchase and use fo teh direct material are also presented.

    Standard cost for direct material

    1.60 lb @ $2.50 per lb. = $4.00

    Budget Actual

    Finished goods in units 30,000 32,000

    Direct material usage in pounds 48,000 51,000

    Direct mateiral purchases in pounds 48,000 50,000

    total cost of direct materials $120,000 $120,000

    The direct mateiral efficiency (usage) variance for the current month is

    A: $500 favorable

    B: $8000 unfavorable

    C: $3000 favorable

    D: $7500 unfavorable

    Answer: $500 favorable. This answer is correct. This alternative correctly calculates the direct material efficiency (usage) variance as the difference between the standard pounds allowed for the actual units produced (32,000 × 1.60 = 51,200) and the actual pounds used (51,000) times the standard price ($2.50).


    Since the dm usage variance is Standard Price*(Actual quantity-standard quanitty), why not use 2.5*(51,000-48,000), with 48,000 being the budget direct mateirals used, rather than use 51,200 which is the standard pounds allowed for actual units produced?

Viewing 8 replies - 1 through 8 (of 8 total)
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  • #520264
    taxman89
    Participant

    Standard Price*(Actual quantity-standard quantity) doesnt account for the increase in units. if you assumed 32k units for your budget than your direct material budgeted would be the 51200. so really for 32 units you came in 200 pounds under budget. 200 x 2.5/pd give you your 500 favorable

    does that make sense?

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    BEC - 77
    FAR - 78
    REG - 82
    AUD: 61-67-75 (Thanks ninja aud)
    BEC: 77
    FAR: 78
    REG:69-73-70-82

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    #520303
    taxman89
    Participant

    Standard Price*(Actual quantity-standard quantity) doesnt account for the increase in units. if you assumed 32k units for your budget than your direct material budgeted would be the 51200. so really for 32 units you came in 200 pounds under budget. 200 x 2.5/pd give you your 500 favorable

    does that make sense?

    AUD - 75
    BEC - 77
    FAR - 78
    REG - 82
    AUD: 61-67-75 (Thanks ninja aud)
    BEC: 77
    FAR: 78
    REG:69-73-70-82

    Aud-75 3x I knew i never liked you
    Bec-77 1x being in the bubble is stressful
    Reg-82 4x its not me its you...and no we cant be friends
    Far-78 1x easiest section

    #520266
    taxman89
    Participant

    p.s. i cannot wait until i am done with this audit s#$% and can move on to interesting sections 😀

    AUD - 75
    BEC - 77
    FAR - 78
    REG - 82
    AUD: 61-67-75 (Thanks ninja aud)
    BEC: 77
    FAR: 78
    REG:69-73-70-82

    Aud-75 3x I knew i never liked you
    Bec-77 1x being in the bubble is stressful
    Reg-82 4x its not me its you...and no we cant be friends
    Far-78 1x easiest section

    #520305
    taxman89
    Participant

    p.s. i cannot wait until i am done with this audit s#$% and can move on to interesting sections 😀

    AUD - 75
    BEC - 77
    FAR - 78
    REG - 82
    AUD: 61-67-75 (Thanks ninja aud)
    BEC: 77
    FAR: 78
    REG:69-73-70-82

    Aud-75 3x I knew i never liked you
    Bec-77 1x being in the bubble is stressful
    Reg-82 4x its not me its you...and no we cant be friends
    Far-78 1x easiest section

    #520268
    taxman89
    Participant

    another way to look at is that they made 2000 more units (32000-30000) and those 2000 units should have used 3200 pounds of material (2000×1.6). The extra 2000 units only used 3000 pounds of material (51000 – 48000) so they save 200 pounds of material (saved=favorable) those 200 pounds cost $2.5 a pound so the savings on being more efficient was $500 (200 x 2.5).

    let me know if that helps because i actually enjoy this kind of stuff lol beats the hell out of tax and audit 😀

    AUD - 75
    BEC - 77
    FAR - 78
    REG - 82
    AUD: 61-67-75 (Thanks ninja aud)
    BEC: 77
    FAR: 78
    REG:69-73-70-82

    Aud-75 3x I knew i never liked you
    Bec-77 1x being in the bubble is stressful
    Reg-82 4x its not me its you...and no we cant be friends
    Far-78 1x easiest section

    #520307
    taxman89
    Participant

    another way to look at is that they made 2000 more units (32000-30000) and those 2000 units should have used 3200 pounds of material (2000×1.6). The extra 2000 units only used 3000 pounds of material (51000 – 48000) so they save 200 pounds of material (saved=favorable) those 200 pounds cost $2.5 a pound so the savings on being more efficient was $500 (200 x 2.5).

    let me know if that helps because i actually enjoy this kind of stuff lol beats the hell out of tax and audit 😀

    AUD - 75
    BEC - 77
    FAR - 78
    REG - 82
    AUD: 61-67-75 (Thanks ninja aud)
    BEC: 77
    FAR: 78
    REG:69-73-70-82

    Aud-75 3x I knew i never liked you
    Bec-77 1x being in the bubble is stressful
    Reg-82 4x its not me its you...and no we cant be friends
    Far-78 1x easiest section

    #520270
    Anonymous
    Inactive

    Thanks. Wow I completely missed the fact that since actual finished goods is 32,000 and the budgeted pounds which is 30,000 you have to get the standard quantity for 32,000 instead of 30,000. Dang, I didn't RTMFQ.

    #520309
    Anonymous
    Inactive

    Thanks. Wow I completely missed the fact that since actual finished goods is 32,000 and the budgeted pounds which is 30,000 you have to get the standard quantity for 32,000 instead of 30,000. Dang, I didn't RTMFQ.

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