Student Doubts Forum

exercise 70.2

exercise 70.2

by gabriela lomachinsky -
Number of replies: 1

I'm having a but of a rough time with this question. 

At first I thought like this: MPV = (budget price- actual price) * actual quantity.  400 = (1-actual price)*actual quantity

400 = actual quantity - actual price * actual quantity


then I thought this : actual material = flexible material 

actual material price * actual material quantity = actual material quantity * budget price  * usage ratio 

actual material price * actual material quantity =  actual material quantity *1*2

actual material price * actual material quantity =  2*actual material quantity

400 = actual quantity - 2*actual material quantity

400 = -actual quantity. 

But it cannot be this, therefore I'm a bit lost on where i went wrong, or what I should do it 

In reply to gabriela lomachinsky

Re: exercise 70.2

by Pedro Pinto da Silva Perdigão -
Hello Gabriela,

You need to look at the information provided on the exercise and the solution will be easier than you think. All the key information to solve this exercise is in the bullet points after the table:

In the flexible budget, if the actual sales units were 800 and not 1000 as expected, you will have 1 600€ of direct materials, this is, they decrease proportionally. Then, another key information is that "The variance between the actual value spent and the flexible budget of the materials is 0 €.", meaning that the amount of direct materials in the Actual Budget will also be 1 600€. Therefore, knowing this, since the DM Price Variance is favourable in 400€, the DM usage variance must be unfavourable in 400€ to offset the effect.

With the formula of usage variance you can then find the actual units used of DM.

Good study!