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 3,300 helmets, using 1,947 kilograms of plastic. The plastic cost the company $16,744.

According to the standard cost card, each helmet should require 0.5 kilograms of plastic, at a cost of $9 per kilogram.

Required:

1. According to the standards, what cost for plastic should have been incurred to make 3,300 helmets? How much greater or less is this than the cost that was incurred? (Round "standard kilograms of plastic per helmet" to 1 decimal place.)

2. Break down the difference computed in (1) above into a materials price variance and a materials quantity variance. (Round your actual materials price to two decimal places, and round your final answers to the nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

Ans 1)

No of Helmets manufactured = 3,300

Plastic required per helmet according to Standard Cost = 0.5 kg

Therefore, Plastic required for 3,300 helmets = 1,650 kg (3,300 * 0.5kg)

Cost of Plastic per kg = $9

Total Cost of Plastic as per standard cost = $14,850 (3,300 kg * $9)

Actual Cost Incurred = $16,744

Standard cost is less than actual cost by $1,894.

Ans 2)

Material Price variance = (Standard Price - Actual Price) * Actual Quantity

= ($9 - $8.60) * 1,947 (Actual Price = $16,744 / 1947 = $8.60)

= $779 F

Material Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Price

= (1,650 - 1,947) * $9

= $2,673 U