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- 15 Marks
Question
Bekwai manufactures and sells a single product. The company operates a standard marginal costing system and a just-in-time purchasing and production system. No inventory of raw materials or finished goods is held.
Details of the budget and actual data for the period are as follows:
Budget data:
| Standard production cost per unit: | |
|---|---|
| Direct material: 8kg @ GH¢10.80 per kg | 86.40 |
| Direct labour: 1.25 hours @ GH¢18.00 per hour | 22.50 |
| Variable overheads: 1.25 hours @ GH¢6.00 per hour | 7.50 |
Standard selling price: GH¢180 per unit
Budgeted fixed production overheads: GH¢170,000
Budgeted production and sales: 10,000 units
Actual data:
- Direct material: 74,000 kg @ GH¢11.20 per kg
- Direct labour: 10,800 hours @ GH¢19.00 per hour
- Variable overheads: GH¢70,000
- Actual selling price: GH¢184 per unit
- Actual fixed production overheads: GH¢168,000
- Actual production and sales: 9,000 units
Required:
Using marginal costing principles, prepare a statement that reconciles the budgeted contribution and the actual contribution. (Your statement should show the variances in as much detail as possible).
(15 marks)
Answer
Actual Contribution Calculation:
| Description | Amount (GH¢) |
|---|---|
| Sales (9,000 units x GH¢184) | 1,656,000 |
| Less: | |
| Direct Material (74,000 kg x GH¢11.20) | 828,800 |
| Direct Labour (10,800 hours x GH¢19.00) | 205,200 |
| Variable overheads | 70,000 |
| Total Cost | (1,104,000) |
| Actual Contribution | 552,000 |
Variance Analysis:
| Variance Description | Calculation | Amount (GH¢) |
|---|---|---|
| Sales Price Variance | (GH¢184 – GH¢180) x 9,000 units | 36,000 F |
| Sales Volume Variance | (10,000 units – 9,000 units) x GH¢63.60 | 63,600 A |
| Direct Material Price Variance | (GH¢10.80 – GH¢11.20) x 74,000 kg | 29,600 A |
| Direct Material Usage Variance | (72,000 kg – 74,000 kg) x GH¢10.80 | 21,600 A |
| Direct Labour Rate Variance | (GH¢18.00 – GH¢19.00) x 10,800 hours | 10,800 A |
| Direct Labour Efficiency Variance | (11,250 hours – 10,800 hours) x GH¢18.00 | 8,100 F |
| Variable Overhead Expenditure Variance | (64,800 – 70,000) | 5,200 A |
| Variable Overhead Efficiency Variance | (11,250 hours – 10,800 hours) x GH¢6.00 | 2,700 F |
Reconciliation Statement:
A statement reconciling the budgeted contribution to the actual contribution is as follows:
| Description | Amount (GH¢) |
|---|---|
| Budgeted Contribution | 636,000 |
| Less: Sales Volume Variance | (63,600 A) |
| Add: Sales Price Variance | 36,000 F |
| Less: Cost Variances | (56,400 A) |
| Actual Contribution | 552,000 |
- Cost Variances (Net effect): GH¢10,800 (Favorable) – GH¢67,200 (Adverse) = GH¢56,400 Adverse.
(15 marks)
- Topic: Budgetary control
- Series: JULY 2023
- Uploader: Dotse