ACCA PM · Chapter 12 · Question 8 of 12
The standard price of a material was set at $8 per kg. During the period, a worldwide shortage meant the market price rose, and management agreed that a realistic standard would have been $9 per kg. The company bought 6,000 kg at $9.40 per kg. What are the material price planning and operational variances?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Planning $6,000 adverse; operational $2,400 adverse
Explanation
Planning variance = (original standard - revised standard) x actual quantity = ($8 - $9) x 6,000 = $6,000 adverse; this is outside the purchasing manager's control. Operational variance = (revised standard - actual price) x actual quantity = ($9 - $9.40) x 6,000 = $2,400 adverse. Together they equal the total price variance of $8,400 adverse.
More Standard costing and variance analysis MCQs
- Q10Which of the following is a recognised problem with separating variances into planning and operational elements?
- Q11A purchasing manager buys a cheaper, lower-quality grade of material than standard. Which combination of variances is most likely to arise?
- Q12A company's standard selling price for product T is $50 per unit. During the period it sold 1,900 units at an average price of $48 per…
- Q1Which type of standard assumes perfect operating conditions, with no allowance for wastage, idle time or machine breakdowns?
- Q2A company bought and used 4,200 kg of material at a total cost of $23,100. The standard price is $5.20 per kg and the standard usage is 4…