Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the

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 4,000 helmets, using 2,440 kilograms of plastic. The plastic cost the company $16,104. According to the standard cost card, each helmet should require 0.54 kilograms of plastic, at a cost of $7.00 per kilogram. According to the standards, what cost for plastic should have been incurred to make 4,000 helmets? How much greater or less is this than the cost that was incurred? Break down the difference computed in (1) above into a materials price variance and a materials quantity variance.

Explanation / Answer

1. the cost of plastic that should have been incurred to make 4000 helmets =0.54 x 7x 4000 = $ 15,120

The actual cost of plastic for 4000 helmets was $ 16,104. Therefore the actual cost was higher than the standard cost by $ 984. This is an unfavorable variance.

2. Material price variance is calculated as (standard unit price -actual unit price) x actual quantity of materials used.

Actual unit price is 16,104/2440 = $6.60

Standard unit price is given as $7

Therefore material price variance = (7-6.6) x2440 = $976 favorable

Material quantity variance is calculated as (standard quantity specified for actual production-actual quantity used)x standard price per unit.

Therefore, material quantity variance is (4000x0.54-2440) x7 = 1960 unfavorable

Therefore total material variance is 976-1960 =(984) unfavorable

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