MA - April 2022 - L2 - Q3a - Standard costing and variance analysis

MA – April 2022 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Question

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

Production in units: 134,400
Direct materials: 10,080 square metres odum wood = GH¢282,240
Direct labour: 33,600 hours = GH¢483,840
Variable production overhead (based on direct labour hours): GH¢225,792
Fixed production overhead: GH¢29,200

Actual Information:

Production in units: 135,000
Direct materials: 10,800 square metres odum wood = GH¢300,240
Direct labour hours: 27,000 hours = GH¢486,000
Variable production overhead: GH¢194,400
Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

Answer

i) Standard Cost Card for One Wooden Chair:

Cost Component	Per Unit Calculation	Per Unit Cost (GH¢)
Direct Materials	10,080 sq. m / 134,400 units = 0.075 sq. m per unit	0.075 x 28 (GH¢/sq. m) = 2.10
Direct Labour	33,600 hrs / 134,400 units = 0.25 hrs per unit	0.25 hrs x 14.40 (GH¢/hr) = 3.60
Variable Overhead	0.25 hrs x (225,792 / 33,600 hrs) = 1.68	1.68
Total Cost Per Unit		7.38