Management Accounting
2nd Year Examination
Additional Sample Questions and Solutions - Variance
AdditionalQuestion1
ThefollowinginformationrelatestoproductXwhichisproducedbySTADIUMLtd.duringDecember:
Variances € / £
Materials price 28,500 Favourable Materials usage 10,500 Adverse Labour rate 24,980 Adverse Labour efficiency 40,000 Favourable Actual data Materials costs Labour costs Production volume € / £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.
10Marks
(b) Outlinetwopossiblereasonsforeachofthematerialpriceandlabourefficiencyvariances.
(c)
4
Marks
Briefly list and explain three benefits and three limitations of a standard costing system.
6 Marks
Total:20Marks
SolutiontoAdditionalQuestion1
Standardcostperkgofmaterial
Materialpricevariance
40,000kg should have cost (40,000 x C) 40,000kg did cost Variance € / £ 40,000C 600,000 28,500 F € 628,500 (Bal. Fig) 600,000 28,500 F 40,000kg should have cost 40,000kg did cost Variance Therefore40,000xCost=€/£628,500
Standardcostperkgofmaterial=€/£628,500/40,000=€/£15.7125(roundoffto€15.71)
Standardkgofmaterialusedperunitofproduct
Materialusagevariance
10,000 units should have used (10,000 x kg)
10,000 units did use x standard cost per kg € / £15.71 Variance Thereforethevarianceinkgis€/£10,500/€/£15.71=668kg
10,000 units should have used (10,000 x kg)
10,000 units did use x standard cost per kg € / £15.71 Variance Therefore10,000xK=39,332
Standardkgperunitofproductis39,332/10,000=3.93Kg
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Kg
10,000K 40,000 Variance in kg € / £10,500 Kg
39,332 40,000 668 € /£10,500 A (Bal. Fig.) A A Standardcostperlabourhour
Labourratevariance
€ / £
55,000C 784,000 24,980 € / £
759,020 784,000 24,980 55,000 hours should have cost (55,000 x C) 55,000 hours did cost Variance 55,000 hours should have cost (55,000 x C)
55,000 hours did cost Variance A (Bal. Fig.) A Therefore55,000xCost=€/£759,020
Standardcostperlabourhour=€/£759,020/55,000=€/£13.80
Labourhoursperunitofproduct
Labourefficiencyvariance
Hrs. 10,000 units should have used (10,000 x hrs.)
10,000H 10,000 units did use 55,000 Variance in hrs x standard cost per hr. € / £13.80 Variance €40,000 F Thereforethevarianceinhoursis€/£40,000/€/£13.80=2,898hrs.
Hrs.
10,000 units should have used (10,000 x hrs.)
57,898 10,000 units did use 55,000 2,898 x standard cost per hr € /£13.80 Variance €40,000 F Therefore10,000xhrs=57,898
Standardhoursperunitofproductis57,898/10,000=5.79hrs
4
Standardcostcardperunit
Materialscost
Labourcost
Totalcost
3.93kg@€/£15.71perkg
5.79hours@€/£13.80perhour
5
€/£
61.74
79.90
141.64
AdditionalQuestion2
Thestandardcostcard(perunit)fortheVisual,oneoftheproductsproducedbyTHOMONDLtdisasfollows.
€ /£ Direct material 32kg @ € / £6 per kg
192 Direct labour 12 hrs. @ € / £12 per hr.
144 Fixed production overhead 12 hrs. @ € / £14 per hr.
168 504 During August 2013 Thomond Ltd reported the following variances for the Visual Material price 37,680 favourable
Material usage 960 adverse
Labour rate 21,196 adverse
Labour efficiency 16,956 favourable
Fixed production overhead expenditure 20,000 favourable
Fixed production overhead volume 25,200 adverse
Actual data Fixed production overhead 400,000
Direct labour cost 342,640
Direct material cost per kg 9
Required:
a) Calculate the following
i. Budgeted output
ii. Actual hours worked
iii. Actual labour rate per hour
iv. Actual output
v. Actual number of kg of materials used
12Marks
b) Outline the key factors that should be considered before deciding whether or not a variance should be investigated.
4Marks
c) Outline two possible reasons for each of the fixed production overhead expenditure and fixed production overhead
volume variances calculated.
4 Marks
Total:20Marks
6
SolutiontoAdditionalQuestion2
i. Budgeted output
Fixedoverheadexpenditurevariance
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€/£168xBO=€/£420,000
Budgetedoutput=€/£420,000/€/£168=2,500units
ii. Actual labour hours worked
Labourratevariance
Actual hours should have cost (AH x € / £ 12)
Actual hours did cost Variance € / £ 12 AH 342,640 €21,196 A Actual hours should have cost (AH x € / £ 12)
Actual hours did cost Variance € / £ 321,444 342,640 €21,196 A Thereforeactualhours€/£321,444/12=26,787hours
iii. Actual labour rate per hour
Actualcost€/£342,640/26,787=€/£12.8
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iv. Actual output
Labourefficiencyvariance
Actual outputs should have taken (12 x AO) Actual output did take Variance x standard rate per hour € / £12 € / £ 12AO 26,787 Variance in hours 16,956 F F € / £ 28,200 26,787 1,413 16,956 F F 2,500 2,350 150 25,200 A A Thereforethevarianceinhoursis€/£16,956/€/£12=1,413hrs.
Actual output should have taken (12 x AO) Actual output did take Variance x standard rate per hour € / £12 Thereforeactualoutput€/£28,200/12=2,350units
or
Productionoverheadvolumevariance
Budgeted output Actual output Variance x standard rate per unit € / £168 v. Actual kg of material used
Materialusagevariance
2,350 units should have used (2,350 x 32kg)
2,350 units did use x standard cost per kg € / £6 Variance Thereforethevarianceinkgis€/£960/€/£6=160kg
Kg 75,200 ______ Variance in kg € / £960 A Kg 8
2,350 units should have used (2,350 x 32kg)
2,350 units did use x standard cost per kg € / £6 Variance 75,200 75,360 (Bal. Fig) 160 A € / £960 A Thereforeactualkgofmaterialusedis75,360kg.
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