N PERFOMANCE MANAGEMENT-MANAGEMENT ACCOUNTING ASPECT
WEEK 4
QUESTIONS
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TOPIC: PLANNING AND CONTROL VARIANCE, VARIANCE ANALYSIS
VIDEO LECTURE CHEPTER: 5
QUESTION 1
Conferno Ltd. has provided you with the following production information for further analysis:
Budgeted Costs (per unit)
N
Direct Materials (15kg at N2/kg)
30
Direct Labour (2hours at N10/hr)
20
Variable Overhead (2 x N5/hr)
10
Fixed Overhead (2 x N10)
20
Total Cost
80
Budgeted Variable Overhead
N150,000
Budgeted Fixed Overhead
N200,000
Fixed and Variable overhead are absorbed on the basis of direct labour hours which are estimated to be
20,000 per month.
Actual Cost Results
N
Direct Materials (14,000 kg)
210,000
Direct Labour (17,500 hours)
192,500
Variable Overhead
100,000
Fixed Overhead
190,000
Conferno had budgeted for sales of 10,000 units at a price of N110 per unit, but reports that actual sales
revenue was N1,080,000 for 9,000 units.
Requirement
(a) Calculate the following variances:
(i) Sales Price Variance
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(ii) Sales Volume Profit Variance
(iii) Material Price Variance
(iv) Materials Usage Variance
(v) Labour Rate Variance
(vi) Labour Efficiency Variance
(vii) Variable Overhead Expenditure Variance
(viii) Variable Overhead Efficiency Variance
12 Marks
(b) Calculate the following fixed overhead variances:
(i) Fixed Overhead Expenditure Variance
(ii) Fixed Overhead Volume Variance
(iii) Fixed Overhead Volume Efficiency Variance
(iv) Fixed Overhead Volume Capacity Variance
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QUESTION 2 (Compulsory)
Planet plc. uses a standard costing system. The following information relates to the company’s product
Earth, for the month of August:
Standard data
Actual data
Sales
Sales Volume units
Selling Price per unit (N)
20,000
24.00
18,500
28.50
Production
Materials used per unit (kg)
Materials price per kg (N)
Labour hours per unit
Labour rate per hour (N)
1.75
8.50
0.65
10.80
2.00
9.00
0.85
10.50
Required:
(a) Prepare a statement showing the budgeted profit and the actual profit for August.
4 Marks
(b) Calculate the following variances:
i. Sales Price
ii. Sales Volume
iii. Materials Price
iv. Material Usage
v. Labour rate
vi. Labour efficiency
Note: each section carries equal marks.
12 Marks
(c) Outline the key factors that should be considered before deciding whether or not a variance should
be investigated.
4 Marks
Total: 20 Marks
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QUESTION 3
1. A company sets its sales budget based on an average price ofN14 per unit and sales volume of
250,000 units. Competition was more intense than expected and the company only achieved sales of
220,000 and had to sell at a discounted price ofN12.50 per unit. The company was unable to reduce
costs so profit per unit fell fromN4 per unit toN2.50 per unit. It was estimated that the total market
volume grew by 10% from 1,000,000 units to 1,100,000 units.
Required:
(a) Calculate the sales price and volume variances.
(b) Analyse the volume variances into market share and market size.
(c) Discuss whether the price variance is a planning or operational variance.
2. Hudson has a sales budget of 400,000 units for the coming year based on 20% of the total market. On
each unit, Hudson makes a profit ofN3.
Actual sales for the year were 450,000, but industry reports showed that the total market volume had
been 2.2 million.
(a) Find the traditional sales volume variance.
(b) Split this into planning and operational variances (market size and market share). Comment on your
results.
3. Holmes Ltd uses one raw material for one of their products. The standard cost per unit at the
beginning of the year wasN28, made up as follows:
Standard material cost per unit = 7 kg per unit atN4 per kg =N28. In the middle of the year the supplier
had changed the specification of the material slightly due to problems experienced in the country of
origin, so that the standard had to be revised as follows:
Standard material cost per unit = 8 kg per unit atN3.80 per kg =N30.40.
The actual output for November was 1,400 units. 11,000 kg of material was purchased and used at a
cost ofN41,500.
Calculate
(a) material price and usage variances using the traditional method
(b) all planning and operational material variances.
4. The standard hours per unit of production for a product is 5 hours. Actual production for the period
was 250 units and actual hours worked were 1,450 hours. The standard rate per hour wasN10. Because
of a shortage of skilled labour it has been necessary to use unskilled labour and it is estimated that this
will increase the time taken by 20%.
Required:
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Calculate the planning and operational efficiency variances.
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