Question

Scorpion production company planned to use 1 yard of plastic per unit budgeted at $81 a yard. however, the plastic actually cost $80 per yard. the company actually made 3,900 units, although it had planned to make only 3,300 units. total yards used for production were 3,960. how much is the total materials variance?

Answer 1

The total material variance is calculated through the equation, 
                         total material variance = (SP x SQ) - (AP x AQ)
where SP and SQ are standard price and standard quantity, respectively and AP and AQ are actual price and actual quantity, respectively.

Substituting the known values,
                          total material variance = ($81 x 3300) - ($80 x 3900) 
                                                              = -$44,700

Answer 2

The material variance is $900 unfavorable for Scorpion Production.

Further Explanation:

Variance:  

It is the difference between the standard cost and the actual cost. A positive figure of variance is treated as favorable, and the negative variance is taken as unfavorable. The difference occurs due to the difference between the estimation and actual cost incurred. A lower variance is considered favorable because it states that the management’s estimations are accurate.

Calculate the material variance for Scorpion:

The material variance is calculated by subtracting the budgeted material cost from the actual material cost. The budgeted material is calculated budgeted units with the budgeted price, and the actual material is calculated by multiplying the actual units with the actual price.

$\begin{aligned}\text{Material variance}&=\text{Actual Material Cost}-\text{Budgeted Material Cost}\\&=\text{Actual cost}\times{\text{Actual units}}-\text{Budgeted cost}\times{\text{Budgeted units}}\\&=( 3,960\times\ 80)-(3,900\times\ 81)\\&=\ 900\:(\text{Unfavourable}) \end{aligned}$

Thus, the material variance is $900 unfavorable for Scorpion Production.

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Answer Details:

Grade: Senior school

Chapter: Variance

Subject: Cost accounting

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