Oklahoma Pneumatic uses a JIT system The following standards

Oklahoma Pneumatic uses a JIT system. The following standards are related to materials A and B, which are used to make one unit of the company

Solution

July Material cost:

11000 pounds of material A @ 2.50 = 27500 Current material A 6000 pounds @2.50 15000 Annual A9000 lbs@2.50 22500

10000 pds of mat B @ 3.40 = 34000 B 15000 pounds @3.40 51000 B12000 3.40 40800

Total cost 61500   66000 63300

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Thus actual cost is less than the current std by 4500 dollars.

Hence ECO material variance = 4500 (favourable)

Material variance annual = 1800 (favourable)

Eco on product cost = cost reduced by 4500/3000 = 1.50 dollar /unit.