SOTE TWAWEZA 2012 PART D
STANDARD COSTING AND VARIANCE ANALYSIS
Question
Various variances
A company produces and sells one product only, the Thing, the standard cost for one unit being as follows. $ Direct material A – 10 kilograms at $20 per kg 200 Direct material B – 5 litres at $6 per litre 30 Direct wages – 5 hours at $6 per hour 30 Fixed production overhead 50 Total standard cost 310 The fixed overhead included in the standard cost is based on an expected monthly output of 900 units. Fixed production overhead is absorbed on the basis of direct labour hours. During April the actual results were as follows. Production Material A Material B Direct wages
800 units 7,800 kg used, costing $159,900 4,300 litres used, costing $23,650 4,200 hours worked for $24,150
Fixed production overhead $47,000 Required (a)
Calculate price and usage variances for each material.
(b)
Calculate labour rate and efficiency variances.
(c)
Calculate fixed production overhead expenditure and volume variances and then subdivide the volume variance.
Answer (a)
Price variance – A 7,800 kgs should have cost (× $20) but did cost Price variance
$ 156,000 159,900 3,900 (A)
Usage variance – A 800 units should have used (× 10 kgs) but did use Usage variance in kgs × standard cost per kilogram Usage variance in $
8,000 kgs 7,800 kgs 200 kgs (F) × $20 $4,000 (F)
Price variance – B 4,300 litres should have cost (× $6) but did cost Price variance
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$ 25,800 23,650 2,150 (F)
SOTE TWAWEZA 2012 11: VARIANCE ANALYSIS
Usage variance – B 800 units should have used (× 5 l) but did use Usage variance in litres × standard cost per litre Usage variance in $ (b)
$ 4,000 l 4,300 l 300 (A) × $6 $1,800 (A)
Labour rate variance 4,200 hours should have cost (× $6) but did cost Rate variance
$ 25,200 24,150 1,050 (F)
Labour efficiency variance 800 units should have taken (× 5 hrs) but did take Efficiency variance in hours × standard rate per hour Efficiency variance in $ (c)
4,000 hrs 4,200 hrs 200 hrs (A) × $6 $1,200 (A)
Fixed overhead expenditure variance Budgeted expenditure ($50 × 900) Actual expenditure Expenditure variance
$ 45,000 47,000 2,000 (A)
Fixed overhead volume variance Budgeted production at standard rate (900 × $50) Actual production at standard rate (800 × $50) Volume variance
$ 45,000 40,000 5,000 (A)
Fixed overhead volume efficiency variance 800 units should have taken (× 5 hrs) but did take Volume efficiency variance in hours × standard absorption rate per hour Volume efficiency variance
$ 4,000 hrs 4,200 hrs 200 hrs × $10 $2,000 (A)
Fixed overhead volume capacity variance Budgeted hours Actual hours Volume capacity variance in hours × standard absorption rate per hour ($50 ÷ 5)
Exam focus point
4,500 hrs 4,200 hrs 300 hrs (A) × $10 $3,000 (A)
You have to be very happy with basic variance calculations so it is essential to do more practice if you struggled with this question.
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