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 1 included: Material X: 9 kilos at 1.20 per kilo Total purchases of material X in period 1, for use in all products, were 142000 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. 147400 kilos of material X were purchased in period 2 at a favourable price variance of 1031.80. A favour- able usage variance of 0.5% of standard occurred on material X in the manufacture of product M in the period.

Total purchases of material X in period 1, for use in all products, were 142000 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. 147400 kilos of material X were purchased in period 2 at a favourable price variance of 1031.80. A favour- able 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 1 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 1 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.