After developing a Budget Variance Analysis: (The actual quantity of material us

Question

After developing a Budget Variance Analysis: (The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15)

What needs to be investigated to determine the reason for the variance/Why?.

Raw Materials Budget July, August, and September 2015 July August Sept.      Total Production budget (units) 16,600 20,600 22,800 60,000 Materials requirement per unit 0.5 0.5 0.5 0.5 Materials needed for production 8,300 10,300 11,400 30,000 Add budgeted ending inventory 2,060 2,280 1,980 1,980 Total materials requirements (units) 10,360 12,580 13,380 31,980 Deduct beginning inventory (previous month ending inventory) 4,600 2,060 2,280 4,600 Materials to be purchased 5,760 10,520 11,100 27,380 Material price per unit                        7.75             7.75           7.75           7.75 Total cost of direct material purchases $44,640 $81,530 $86,025 $212,195

Explanation / Answer

1. The Actual price per unit of maretial purchased is $7.75 which is equal to Standard price per unit of Raw Material. So there will not be any Material Price Variance.

2. Total Standard Requirement of raw material =27380

But actual quantity purchased = 31000

So there is Adverse Material Usage Variance.

Amount of Material Usage Variance = 31000*7.75 - 27380*7.75 = $28,055 Unfavorable

Since no budget data for labor is vailable, variance analysis for labor is not possible.

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