Question

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 35,000 helmets, using 22,500 kilograms of plastic. The plastic cost the company $171,000.

According to the standard cost card, each helmet should require 0.6 kilgrams of plastic at a cost of $8 per kilogram.

REQUIRED:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 35,000 helmets?

2. What is the standard materials cost allowed (SQ X SP) to make 35,000 helmets?

3. Wht is the materials spending variance?

4. What is the materials price variance and the materials quantity variance?

Answer 1

Solution:
1.	The standard quantity of kilograms of plastic (SQ) that is allowed to make 35,000 helmets
			=21,000 kg
Working Notes:
	The standard quantity of kilograms of plastic (SQ) that is allowed to make 35,000 helmets		= Standard quantity required per helmet x Total no. of helmets
			= 0.60 kg x 35,000
			= 21,000 kg of plastic
2.	The standard materials cost allowed (SQ X SP) to make 35,000 helmets		= $168,000
Working Notes:
	The standard materials cost allowed (SQ X SP) to make 35,000 helmets		= Standard quantity required per helmet x Standard cost per kg x Total no. of helmets
			= 0.60 x $8 x 35,000
			= $168,000
3.	Materials spending variance = $3,000 Unfavorable
Working Notes:
	Materials spending variance = Price variance + Quantity variance
	Materials Price variance = (AQ × AP) - (AQ × SP)
	= $171,000 - (22,500 x $8)
	= $171,000 - 180,000
	= -$9,000
	= $9000 Favaorable	-Ve is favorable for this formula used
	Materials Quantity variance = (AQ × SP) - (SQxSP)
	= (22,500 x $8) - $168,000	SQ x SP = $168,000 is used from above 2.
	= 180,000 - $168,000
	=$12,000
	= $12,000 Unvaforable	+Ve is unfavorable for this formula used
	Materials spending variance = Price variance + Quantity variance
	= -$9,000+ $12,000	[ from above calculation ]
	= $3,000
	= $3000 Unfavorable	+Ve is unfavorable for this formula used
4.	Materials price variance	$9,000 Favorable
	Materials quantity variance	$12,000 Unfavorable
Working Notes:
	Materials Price variance = (AQ × AP) - (AQ × SP)
	= $171,000 - (22,500 x $8)
	= $171,000 - 180,000
	= -$9,000
	= $9000 Favaorable	-Ve is favorable for this formula used
	Materials Quantity variance = (AQ × SP) - (SQxSP)
	= (22,500 x $8) - $168,000	SQ x SP = $168,000 is used from above 2.
	= 180,000 - $168,000
	=$12,000
	= $12,000 Unvaforable	+Ve is unfavorable for this formula used
Please feel free to ask if anything about above solution in comment section of the question.