Question $2$

Greenco manufactures product $G,$ which has a standard direct material cost per unit of: $5$ kilos at

$$6$ per kilo $=$$$30.$

Actual output during a month is $4,000$ units of product $G,$ and the direct materials actually used in

production were $16,500$ kilos at a cost of $$119,000.$

Following recent review of the market and production process, the management of Greenco

believes that the current standard is incorrect and a more realistic standard cost should be: $4$

kilos at $$7$ per kilo $=$$$28.$

Required

a$)$ Calculate materials cost, price and usage variances based on a static standard cost for

the materials.

b$)$ Analyse the total planning variance for materials cost into a planning variance for

materials price and a planning variance for materials usage.

c$)$ Refer to your calculations above $-$ why might the manager responsible for production

process resist the use of the revised standard to evaluate her$/$his performance?