In Command Ltd completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: $$\begin{array} { l l }
\text { Efficiency variance } & \$ 9,000 \text { Unfavourable } \
\text { Stardard price } & \$ 10 \text { per unit } \
\text { Actual units purchased } & 18,000 \
\text { Inventory decrease } & 1,000 \text { units } \
\text { Budget variarice } & \$ 1,800 \text { Favourable }
\end{array}$$ The standard quantity of direct materials allowed for the month was:
A) 17,100
B) 9,000
C) 17,000
D) 9,550

Question

In Command Ltd completed operations for the week and the accountant was preparing to make journal entries necessary to prepare a set of interim financial statements. Unfortunately, he discovered some of the data concerning direct materials had been lost. He was able to find the following: $$\begin{array} { l l } 
\text { Efficiency variance } & \$ 9,000 \text { Unfavourable } \
\text { Stardard price } & \$ 10 \text { per unit } \
\text { Actual units purchased } & 18,000 \
\text { Inventory decrease } & 1,000 \text { units } \
\text { Budget variarice } & \$ 1,800 \text { Favourable }
\end{array}$$ The standard quantity of direct materials allowed for the month was:
A) 17,100
B) 9,000
C) 17,000
D) 9,550

Quizplus · Accepted Answer

The efficiency variance formula is: Efficiency Variance = (Actual Quantity - Standard Quantity) x Standard Price. Given an unfavorable efficiency variance of $9,000 and a standard price of $10 per unit, we can deduce that the actual quantity used exceeded the standard quantity by 900 units (since $9,000 / $10 per unit = 900 units). The actual quantity used can be calculated as the actual units purchased plus the inventory decrease, which is 18,000 units + 1,000 units = 19,000 units. Therefore, the standard quantity allowed for the month is 19,000 units - 900 units = 18,100 units. However, since 18,100 is not an option and considering the calculation approach, it seems there was a mistake in the explanation process. Reevaluating the correct approach: The actual quantity used for production is the actual units purchased minus the inventory decrease, which is 18,000 units - 1,000 units = 17,000 units. Given the unfavorable efficiency variance, this means the standard quantity allowed must be less than the actual quantity used, but without the exact calculation for this part, the provided options and explanation don't directly lead to a clear correct answer based on the initial explanation. The correct standard quantity calculation should directly relate to the given data and the correct interpretation of efficiency variance, but with the provided information and options, a precise calculation mistake was made in the explanation. The correct approach involves understanding that the efficiency variance indicates how much more or less was spent due to using more or less material than the standard allowed, and without the direct calculation from actual usage to standard quantity based on the variance and standard price, the explanation led to confusion. The correct answer should be deduced from the given data and the proper application of the efficiency variance formula, considering the relationship between actual usage, standard quantity, and the variance.

In Command Ltd Completed Operations for the Week and the Accountant