Three manufacturing companies provide the following information regarding the
price and usage of chemicals used to produce an identical product:

Question

Accepted Answer

Company A’s standard price of its actual usage (£1.30 × 200 = £260) was less than
the actual price of its actual usage (£1.50 × 200 = £300), resulting in an adverse
price variance of £40. However, there is no usage variance as the standard price of
its standard usage (£1.30 × 200 = £260) was the same as the standard price of its
actual usage (also £1.30 × 200 = £260). Overall, the total materials variance for
Company A was £40 adverse (£40 adverse price variance, no usage variance).
Company B’s standard price of its actual usage (£1.20 × 230 = £276) was the same
as the actual price of its actual usage (also £1.20 × 230 = £276), so there is no price
variance. However, as the standard price of the standard usage (£1.20 × 250 = £300)
is greater than the standard price of its actual usage (£1.20 × 230 = £276), this
results in a favourable usage variance of £24. Overall, the total materials variance for
Company B was £24 favourable (no price variance, £24 favourable usage variance).
Company C has both a price variance and a usage variance. The standard price of the
actual usage (£1.60 × 280 = £448) was greater than the actual price of the actual usage
(£1.40 × 280 = £392), resulting in a favourable price variance of £56. The standard
price of the standard usage (£1.60 × 270 = £432) was less than the standard price of
the actual usage (£1.60 × 280 = £448), resulting in an adverse usage variance of £16.
Overall, the total materials variance for Company C was £40 favourable (£56 favourable
price variance - £16 adverse usage variance).
The variances for the three companies are summarised in Figure 11.3.

Question 11.1: Three manufacturing companies provide the following informat...

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Related Answered Questions

	A	B	C
Standard price per litre	£1.30	£1.20	£1.60
Standard usage (litres)	200	250	270
Actual price per litre	£1.50	£1.20	£1.40
Actual usage (litres)	200	230	280