Question

ABC Pvt Ltd is a manufacturer of premium quality wrist watches. For manufacturing wrist watches, the company uses different kinds of raw materials,labourers and machines. In 2019, the company sets various standards related to the material cost used in manufacturing. In 2020, actual results related to the material cost were noted. However, while comparing standard results with actual results, differences were found within the two.

Q1     Describe the various material cost variances which the company should calculate in this scenario along with the formulas.

Q2 In June 2020, the same company produced 500 wrist watches. Variable cost per wrist watch was Rs 50. If production is increased by one unit i.e it becomes 501 wrist watches, find the marginal cost per unit

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Answer 1

Explanation:

The formula for this variance is:(standard quantity of material allowed for production – actual quantity used) × standard price per unit of material. (standard quantity of material allowed for production – actual quantity used) × standard price per unit of material.