Miss

Topics: Direct material price variance, Direct material total variance, Direct material usage variance Pages: 3 (806 words) Published: November 1, 2014

Material total, price and usage
Practor & Gamble original budget for the product Alpha 577 does not include the variances in material total, price and usage. To create a budget, its necessary to calculate all the direct and indirect costs, usage and their variances of the materials used. The direct material costs can be traced in full to the product, service or department that is being cost. The indirect material costs cannot be traced directly to the product, service or department and are included in the production overhead. Direct material costs variances calculates the materials total, price and usage and it’s an essential part of the flexible budget. The variances to follow show the difference between the actual result and the expected result from P & G to the Alpha 577 product. The product Alpha 577 has a standard direct material cost of material A and B as follows: For 10,000 units

Direct materials: €
2kg of material A per unit, 20,000kg @ €10 per kg 200,000 1kg of material B per unit , 15,000kg @ € 15 per kg150,000 The actual results for september:
Sales 9000 units
Direct materials: €
19,000 kg of material A @ €11 per kg209,000
10,100 kg of material B @ € 14 per kg141,400
The first observation is that the number of units sold is 10% reduced from the standard cost to the actual cost. A difference usually adverse unless all the variances in the budgets are well calculated and compensative. Another observation is that the material usage in the actual budget to make 9000 units exceed the standard material usage to make 10% more of the product. From this point you can have a preview that the total direct material cost will be adverse. In the next session of the material report the number was equalized to 9,000 units, to make possible a more detailed comparative analysis of the direct material total variance, direct material usage and direct material price. Direct material total variance:

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