PlasBas Co uses recycled plastic to manufacture shopping baskets for local retailers. The standard price of the recycled plastic is $0·50 per kg and standard usage of recycled plastic is 0·2 kg for each basket. The budgeted production was 80,000 baskets.
Due to recent government incentives to encourage recycling, the standard price of recycled plastic was expected to reduce to $0·40 per kg. The actual price paid by the company was $0·42 per kg and 100,000 baskets were manufactured using 20,000 kg of recycled plastic.
What is the materials operational price variance?
An operational variance compares revised price to actual price.
20,000 kg should cost $0·40 per kg at the revised price (20,000 kg x $0·40) = $8,000
20,000 kg did cost $0·42 per kg (20,000 kg x $0·42) = $8,400
Variance = $400 adverse