Material price and usage variances and calculation of material price and usage working backwards from variances AB Ltd manufactures a range of products. One of the products, Product M, requires the use of materials X and Y. Standard material costs for the manufacture of an item of product M in period |

included:

Total purchases of material X in period 1, for use in all products, were 142 000 kilos, costing £171 820.
16270 kilos were used in the period in the manufacture of 1790 units of product M.
In period 2 the standard price of material X was increased by 6%, whilst the standard usage of the material in product M was left unchanged. 147 400 kilos of material X were purchased in period 2 at a favourable price variance of £1031.80. A favourable usage variance of 0.5% of standard occurred on material X in the manufacture of product M in the period.
Required:

(a) Calculate:
(i) the total price variance on purchases of material X in period 1; (2 marks)
(ii) the material X usage variance arising from the manufacture of product M in period 1; (3 marks)
(iii) the actual cost inflation of material X from period | to period 2 (calculate as a percentage increase to one decimal place); (5 marks)
(iv) the percentage change in actual usage of material X per unit of product M from period | to period 2 (calculate to one decimal place). (5 marks)

(b) Describe, and contrast, the different types of standards that may be set for raw material usage and labour efficiency.

Transcribed Image Text:

Material X: 9 kilos at 1.20 per kilo