High School

KCL Manufacturing expects that there will be a standard 3 kilos of raw material used for every unit of finished goods produced. KCL began the month of May with 5,000 kilos of raw material, purchased 15,000 kilos for £19,500, and ended the month with 4,000 kilos on hand. The company produced 5,000 units of finished goods. The company estimates standard costs at £1.50 per kilo.

What is the materials price variance for the month of May based on the quantity purchased? Show all calculations.

Answer :

KCL Manufacturing's materials price variance for May is £3,000 favorable.

To calculate the materials price variance for KCL Manufacturing for the month of May, we use the following steps:

1. Determine the actual cost per kilo of raw material.

Actual Cost Per Kilo: The company purchased 15,000 kilos for £19,500:

Actual Cost Per Kilo = £19,500 / 15,000 kilos = £1.30 per kilo

2. Calculate the total actual cost and the standard cost.

Standard Cost: The standard cost per kilo is estimated at £1.50.

3. Find the price variance.

Material Price Variance Calculation:

Variance = (Standard Cost Per Kilo - Actual Cost Per Kilo) x Quantity Purchased

Variance = (£1.50 - £1.30) x 15,000 kilos = £0.20 x 15,000 = £3,000 Favorable

The materials price variance for May is £3,000 Favorable.