Popcorn Ltd uses a batch production method to produce its single product by combining two materials Corn and Salt. The company has budgeted for a material mix ratio of 90:10 for Corn and Salk respectively. The following information relates to each batch: Direct material input 200 kg Material Corn standard price £1.50 per kg Salt standard price £3.00 per kg Actual results for month 10 were as follows: Output 1,890 kg of popcorn Corn 1,140 kg at a total price of £1,610 Salt 860 kg at a total price of £2,780 (a) Calculate, for month 10, the following variances: (i) material price for each material (ii) material usage for each material (iii) total material variance (b) Provide plausible reasons for material usage and material price variance. (c) Explain the usefulness of flexible budgeting.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Popcorn Ltd uses a batch production method to produce its single product by combining two materials Corn and Salt. The company has budgeted for a material mix ratio of 90:10 for Corn and Salk respectively. The following information relates to each batch:
Direct material input 200 kg
Material Corn standard price £1.50 per kg
Salt standard price £3.00 per kg
Actual results for month 10 were as follows:
Output 1,890 kg of popcorn
Corn 1,140 kg at a total price of £1,610
Salt 860 kg at a total price of £2,780
(a) Calculate, for month 10, the following variances:
(i) material price for each material
(ii) material usage for each material
(iii) total material variance
(b) Provide plausible reasons for material usage and material price variance.
(c) Explain the usefulness of flexible budgeting.
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