Hey everyone,
I'm having a really difficult time understanding these variances, in large part because I think that Becker is terrible at teaching them. I've used it for AUD and REG and it was good for those, but there seems to be lots of inconsistency between the textbook and the problems for BEC.
Case in point: directly from page B2-42, the formula for the DM price variance is Actual quantity PURCHASED x (Actual Price - Standard Price). However, I encountered this problem when doing their homework:
ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was $60,000, and there was an unfavorable quantity variance of $2,500.
The materials price variance for the units used in November was:
a. $2,500 favorable.
b. $2,500 unfavorable.
c. $11,000 unfavorable.
d. $12,500 unfavorable.
The answer is D, however I can't for the life of me figure out why. I understand how to get the actual price and standard price, but per their explanation, they're using actual quantity USED, not purchased. Their explanation is, as follows:
The facts of the question tell us that 12,000 units were produced in November. At two units of raw materials per unit produced, that’s a standard of 24,000 units of raw materials. Actual units used (S − A = D) are then 25,000 units to produce the unfavorable usage variance of $2,500 (alternatively, 24,000 standard units plus 1,000 unfavorable units used = 25,000 units used).
It seems like they're completely contradicting themselves and it's driving me nuts. Could someone please help me clear this up? It is materials used or purchased?
Thank you!