Management Accounting
2nd Year Examination
Additional Sample Questions and Solutions - Variance
Additional Question 1
The following information relates to product X which is produced by STADIUM Ltd. during December:
Variances
Materials price
Materials usage
Labour rate
Labour efficiency
Actual data
Materials costs
Labour costs
Production volume
€/£
28,500
10,500
24,980
40,000
Favourable
Adverse
Adverse
Favourable
€ / £600,000 for 40,000kg
€ / £784,000 for 55,000 hrs.
10,000 units
Actual and standard production volumes are the same.
Required:
(a)
Prepare a standard cost sheet for Product Z.
10 Marks
(b) Outline two possible reasons for each of the material price and labour efficiency variances.
4
Marks
(c)
Briefly list and explain three benefits and three limitations of a standard costing system.
6 Marks
Total: 20 Marks
Solution to Additional Question 1
Standard cost per kg of material
Material price variance
40,000kg should have cost (40,000 x C)
40,000kg did cost
Variance
€/£
40,000C
600,000
28,500
40,000kg should have cost
40,000kg did cost
Variance
€
628,500
600,000
28,500
F
(Bal. Fig)
F
Therefore 40,000 x Cost = € / £628,500
Standard cost per kg of material = € / £628,500/40,000 = € / £15.7125 (round off to €15.71)
Standard kg of material used per unit of product
Material usage variance
Kg
10,000K
40,000
Variance in kg
10,000 units should have used (10,000 x kg)
10,000 units did use
x standard cost per kg € / £15.71
Variance
€ / £10,500
A
Therefore the variance in kg is € /£10,500/€ /£15.71 = 668kg
Kg
39,332
40,000
668
10,000 units should have used (10,000 x kg)
10,000 units did use
x standard cost per kg € / £15.71
Variance
€ /£10,500
Therefore 10,000 x K = 39,332
Standard kg per unit of product is 39,332/10,000 = 3.93Kg
3
(Bal. Fig.)
A
A
Standard cost per labour hour
Labour rate variance
55,000 hours should have cost (55,000 x C)
55,000 hours did cost
Variance
€/£
55,000C
784,000
24,980
55,000 hours should have cost (55,000 x C)
55,000 hours did cost
Variance
€/£
759,020
784,000
24,980
A
(Bal. Fig.)
A
Therefore 55,000 x Cost = € /£759,020
Standard cost per labour hour = € /£759,020/55,000 = € /£13.80
Labour hours per unit of product
Labour efficiency variance
Hrs.
10,000H
55,000
Variance in hrs
10,000 units should have used (10,000 x hrs.)
10,000 units did use
x standard cost per hr. € / £13.80
Variance
€40,000
F
Therefore the variance in hours is € /£40,000/€ /£13.80 = 2,898 hrs.
Hrs.
57,898
55,000
2,898
10,000 units should have used (10,000 x hrs.)
10,000 units did use
x standard cost per hr € /£13.80
Variance
€40,000
Therefore 10,000 x hrs = 57,898
Standard hours per unit of product is 57,898/10,000 = 5.79hrs
4
F
Standard cost card per unit
Materials cost
Labour cost
3.93kg @ € / £ 15.71 per kg
5.79 hours @ € / £ 13.80 per hour
Total cost
€/£
61.74
79.90
141.64
5
Additional Question 2
The standard cost card (per unit) for the Visual, one of the products produced by THOMOND Ltd is as follows.
€ /£
192
144
168
504
Direct material
32kg @ € / £6 per kg
Direct labour
12 hrs. @ € / £12 per hr.
Fixed production overhead
12 hrs. @ € / £14 per hr.
During August 2013 Thomond Ltd reported the following variances for the Visual
Material price
Material usage
Labour rate
Labour efficiency
Fixed production overhead expenditure
Fixed production overhead volume
37,680 favourable
960 adverse
21,196 adverse
16,956 favourable
20,000 favourable
25,200 favourable
Actual data
Fixed production overhead
Direct labour cost
Direct material cost per kg
400,000
342,640
9
Required:
a) Calculate the following
i.
ii.
iii.
iv.
v.
Budgeted output
Actual hours worked
Actual labour rate per hour
Actual output
Actual number of kg of materials used
12 Marks
b) Outline the key factors that should be considered before deciding whether or not a variance should be investigated.
4 Marks
c) Outline two possible reasons for each of the fixed production overhead expenditure and fixed production overhead
volume variances calculated.
4 Marks
Total: 20 Marks
6
Solution to Additional Question 2
i. Budgeted output
Fixed overhead expenditure variance
Budgeted fixed overhead expenditure (€ /£168 x budgeted output)
Actual fixed overhead expenditure
Variance
€ /£
168 x BO
400,000
20,000
€/£
420,000
400,000
20,000
Budgeted fixed overhead expenditure (€ /£168 x units)
Actual fixed overhead expenditure
Variance
F
(Bal. Fig)
F
Therefore € / £ 168 x BO = € / £420,000
Budgeted output = € / £420,000/€ / £168 = 2,500 units
ii. Actual labour hours worked
Labour rate variance
Actual hours should have cost (AH x € / £ 12)
Actual hours did cost
€/£
12 AH
342,640
Variance
€21,196
Actual hours should have cost (AH x € / £ 12)
Actual hours did cost
€/£
321,444
342,640
Variance
€21,196
Therefore actual hours € /£ 321,444/12 = 26,787 hours
iii. Actual labour rate per hour
Actual cost € / £342,640/26,787 = € / £12.8
7
A
A
iv. Actual output
Labour efficiency variance
€/£
12AO
26,787
Variance in hours
F
16,956
F
Actual output should have taken (12 x AO)
Actual output did take
Variance
€/£
28,200
26,787
1,413
F
x standard rate per hour € / £12
16,956
F
2,500
2,350
150
F
25,200
F
Actual outputs should have taken (12 x AO)
Actual output did take
Variance
x standard rate per hour € / £12
Therefore the variance in hours is € /£16,956/€ /£12 = 1,413 hrs.
Therefore actual output € / £28,200/12 = 2,350 units
or
Production overhead volume variance
Budgeted output
Actual output
Variance
x standard rate per unit € / £168
v. Actual kg of material used
Material usage variance
Kg
75,200
______
Variance in kg
2,350 units should have used (2,350 x 32kg)
2,350 units did use
x standard cost per kg € / £6
Variance
€ / £960
Therefore the variance in kg is € /£960/€ /£6 = 160kg
8
A
Kg
75,200
75,360
2,350 units should have used (2,350 x 32kg)
2,350 units did use
160
€ / £960
x standard cost per kg € / £6
Variance
Therefore actual kg of material used is 75,360kg.
9
(Bal. Fig)
A
A