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 2,480 kilograms of plastic. The plastic cost the company $16,368.

According to the standard cost card, each helmet should require 0.53 kilograms of plastic, at a cost of $7.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 4,000 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 4,000 helmets?

3. What is the materials spending variance?

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

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Answer 1

Given,. The company produced 4,000 helmets using 2,480 kilograms of plastic.

Actual cost to the company=$16,368

According to standard cost card, each helmet requires 0.53 kilograms of plastic at a cost of $7.00 per kilogram.

(1).The standard quantity of kilograms of plastic required to make 4000 helmets=4,000×0.53= 2120 kilograms of plastic.

(2). Standard material cost to make 4,000 helmets=SQ×SP=2120 kg.×$7=$14,840

(3).Actual unit price= actual cost÷actual units=$16,368÷2,480=$6.6 per kilogram.

Material spending variance= Number of units purchased( Actual unit price- Standard unit price)

=2,480($ 6.6-$7)=$992 Unfavourable

(4). Material Price Variance= Actual Quantity( Standard unit price- Actual unit price)

=2480($7-$6.6)=$992 Favourable

Material quantity variance=Standard Price(Standard Quantity- Actual quantity)=$7(2,120-2,480)=$2520 Unfavourable.