Cost Management question

Submitted by vijayavadrevu on Sat, 03/23/2013 - 07:10

The questions is as follows:

Using the table below, the total price variance for direct material is



 

Direct Labour

Direct Material

Planned Price / unit

$10.50

$14.77

Actual units / hr

6374 hrs

5433 units

Actual cost

$68,329

$83,994

Actual price / unit

$10.72

$15.46

Answer is $ -3,749

You can get the answer by multiplying planned price / unit and actual units / hr and then subtracting this from actual cost

 

But iam not understanding the logic,  as to how to solve this question

 

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sandeepdel

Sat, 03/23/2013 - 08:51

 Variance = estimated or planned cost - actual cost. 

So 5433 * 14.77 - 5433*15.46 -- note - question already provided actual cost as 83994 so math for 5433*15.46 is not need as already given.

=- 3748.77 ..and rounding to upper ceiling comes 3749. 

Pls read  direct and indirect cost and which activities are included as you might get questions around it. So it may phrase like you have to Order 5433 units and it was actually planned for 14.77 but you got it for 15.46 and then question will put extra information like indirect costs. And at last will ask about variance in direct cost.

vijayavadrevu

Sat, 03/23/2013 - 09:16

 Thank You !!!!