ABC Company's production budget for October is based on 500 units. Standard unit cost for raw materials is $130 per unit ($10 per pound x 13 pounds per unit). ABC's actual production in October = 525 units. The actual cost of materials used = $69,300 ($11 per pound x 12 pounds per unit).Calculate the raw materials usage variance for October:Raw materials usage variance = $.Use F or U to identify the variance as Favorable or Unfavorable: .
Question
ABC Company's production budget for October is based on 500 units. Standard unit cost for raw materials is 10 per pound x 13 pounds per unit). ABC's actual production in October = 525 units. The actual cost of materials used = 11 per pound x 12 pounds per unit).Calculate the raw materials usage variance for October:Raw materials usage variance = $.Use F or U to identify the variance as Favorable or Unfavorable: .
Solution
To calculate the raw materials usage variance, we first need to determine the standard quantity of raw materials for the actual production and the actual quantity of raw materials used.
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Standard quantity of raw materials for actual production = Standard quantity per unit x Actual units produced = 13 pounds/unit x 525 units = 6825 pounds
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Actual quantity of raw materials used = Actual cost / Actual price per pound = 11 per pound = 6300 pounds
Now, we can calculate the raw materials usage variance:
Raw materials usage variance = (Standard quantity - Actual quantity) x Standard price = (6825 pounds - 6300 pounds) x 5250
If the variance is positive, it is favorable (F), and if it is negative, it is unfavorable (U). In this case, the variance is positive, so it is favorable.
So, the raw materials usage variance for October is $5250 F.
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