Practor And Gamble Case
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 …show more content…
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:
Considering for the budgets 9000 unites.
Standard budget cost for direct materials: €
2kg of material A per unit = 18,000kg @ € 10 per kg 180,000
1kg of material B per unit= 9,000 kg @ € 15 per kg …show more content…
You can notice from the total direct material variance is adverse. This is because the usage and the cost were calculate wrong and exceeded the value of the standard budget generating a big loss from the production factor. Generating profit after this mistake is rare.
Direct material usage variance
9,000 units of the direct material A and B should have used
Standard Budget kg
2 kg of material A per unit 18,000
1 kg of material B per unit 9,000 total of direct materials used 27,000
Actual budget kg material A
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 …show more content…
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:
Considering for the budgets 9000 unites.
Standard budget cost for direct materials: €
2kg of material A per unit = 18,000kg @ € 10 per kg 180,000
1kg of material B per unit= 9,000 kg @ € 15 per kg …show more content…
You can notice from the total direct material variance is adverse. This is because the usage and the cost were calculate wrong and exceeded the value of the standard budget generating a big loss from the production factor. Generating profit after this mistake is rare.
Direct material usage variance
9,000 units of the direct material A and B should have used
Standard Budget kg
2 kg of material A per unit 18,000
1 kg of material B per unit 9,000 total of direct materials used 27,000
Actual budget kg material A