Question Tag: Price Variance

Search 500 + past questions and counting.
Professional Bodies Filter
Program Filters
Subject Filters
More
Tags Filter
More
Check Box – Levels
Series Filter
More
Topics Filter
More
  • 15 Marks

MA – Mar 2024 – L2 – Q3a – Standard costing and variance analysis

This question calculates the sales price, volume, quantity, and mix variances for three products sold by Manjo Plc for the month of January.

The following information relates to the estimate and actual results of Manjo Plc for the month of January:

Particulars KO TO KA
Budgeted sales (units) 36,000 27,000 18,000
Standard selling price (GH¢) 15 10 12.5
Standard variable cost (GH¢) 8 4 7.5
Actual sales (units) 30,000 35,000 25,000
Actual sales (GH¢) 420,000 367,500 325,000

Required:
i) Calculate the sales price variance. (3 marks)
ii) Calculate the sales volume variance. (3 marks)
iii) Analyse the sales volume variance into:

  • Sales quantity variance. (5 marks)
  • Sales mix variance. (4 marks)

i) Sales Price Variance:
The sales price variance measures the impact of the difference between the actual selling price and the budgeted selling price on the actual units sold.

Product Calculation Variance (GH¢) Result
KO (Budgeted Price – Actual Price) × Actual Units Sold (15 – (420,000/30,000)) × 30,000 = 30,000 Adverse
TO (10 – (367,500/35,000)) × 35,000 (10 – 10.5) × 35,000 = 17,500 Favourable
KA (12.5 – (325,000/25,000)) × 25,000 (12.5 – 13) × 25,000 = 12,500 Favourable

Total Sales Price Variance = 30,000 Adverse + 17,500 Favourable + 12,500 Favourable = 5,000 Adverse
(Marks are evenly spread using ticks = 3 marks)

ii) Sales Volume Variance:
The sales volume variance shows the effect of the difference between actual sales volume and budgeted sales volume, valued at the standard contribution.

Product Budgeted Sales (Units) Actual Sales (Units) Volume Variance (Units) Contribution per Unit (GH¢) Variance (GH¢)
KO 36,000 30,000 6,000 A 7 42,000 A
TO 27,000 35,000 8,000 F 6 48,000 F
KA 18,000 25,000 7,000 F 5 35,000 F

Total Sales Volume Variance = 41,000 Favourable
(Marks are evenly spread using ticks = 3 marks)

iii) Sales Quantity Variance:
The sales quantity variance measures the effect of the difference between the actual total sales and the budgeted total sales, valued at the standard contribution.

Product Budgeted Sales (Units) Standard Contribution (GH¢) Budgeted Contribution (GH¢)
KO 36,000 7 252,000
TO 27,000 6 162,000
KA 18,000 5 90,000
Total 81,000 6.2222 504,000
Actual Sales (Units) Actual Contribution (GH¢)
90,000 6.2222
Variance 56,000 Favourable

(Marks are evenly spread using ticks = 5 marks)

iv) Sales Mix Variance:
The sales mix variance measures the effect of the deviation of the actual sales mix from the budgeted sales mix.

Product Actual Mix (Units) Standard Mix (Units) Mix Variance (Units) Contribution per Unit (GH¢) Variance (GH¢)
KO 30,000 40,000 10,000 A 7 70,000 A
TO 35,000 30,000 5,000 F 6 30,000 F
KA 25,000 20,000 5,000 F 5 25,000 F

Total Sales Mix Variance = 15,000 Adverse

  • 9 Marks

MA – Nov 2015 – L2 – Q1d – Standard costing and variance analysis

Calculate sales, material, wage, overhead variances, and reconcile budgeted profit to actual profit.

You have been asked as a cost accountant to reconcile the Budgeted profit to the actual profit using the variance report generated by the management accountant.

i. Calculate the sales variances (2 marks)
ii. The total material variance (1 mark)
iii. The total wage variances (1 mark)
iv. Total manufacturing overhead variances (1 mark)
v. Reconciliation of Budget profit to the actual profit (4 marks)

(Total = 9 marks)

i) Sales Price Variance:
Sales price variance = (Actual contribution – Standard contribution) x Actual quantity
= (¢55 – ¢50) x 9000 = ¢45,000F

Sales Volume Variance:
(Actual volume – Standard volume) x Standard contribution
= (9000 – 10,000) x 50 = 50,000A

Total Sales Variance:
Sales margin price variance = ¢45,000F
Sales margin volume variance = ¢50,000A
Total sales variance = ¢5,000A

ii) Total Material Variance:
Total material variance = Material price variance + Material usage variance
= 22,250A + 66,250A = 88,500A

iii) Total Wage Variance:
Total wage variance = Wage rate variance + Labour efficiency variance
= ¢42,750A + ¢33,750A = ¢76,500A

iv) Total Manufacturing Overhead Variance:
Total manufacturing overhead variance = Fixed overhead expenditure variance + Variable overhead expenditure variance + Variable overhead efficiency variance
= 10,000F + 12,500F + 7,500A = 15,000F

v) Reconciliation of Budgeted Profit to Actual Profit:

Item GHS
Budgeted net profit 200,000
Sales variances:
Sales margin price 45,000F
Sales margin volume 50,000A
Total Sales Variance 5,000A
Direct cost variance:
Material price 66,250A
Material usage 22,250A
Total material variance 88,500A
Total wage variance:
Wage rate variance 42,750A
Labour efficiency 33,750A
Total wage variance 76,500A
Total overhead variance:
Fixed overhead expenditure variance 10,000F
Variable overhead expenditure variance 12,500F
Variable overhead efficiency variance 7,500A
Total overhead variance 15,000F
Total Variance 155,000A
Profit 45,000
  • 20 Marks

IMAC – NOV 2019 – L1 – Q4 – Accounting for Inventory and Labour

Calculate material variances, explain time and piece rate, and compute direct and indirect labour costs

Walata Ltd manufactures and sells a unique anti-cold formula called the Magic Ball. The product is produced from a combination of two ingredients; R and Q with the following details:

Standard quantity per unit:

  • Q: 3kg
  • R: 2kg

Standard prices:

  • Q: GH¢2.50
  • R: GH¢4.00

For the quarter just ended, the following results were recorded:

  • Actual production: 2,000 units
Material Quantity purchased and used Price per Kilogramme
Q 4,800 kg GH¢4.25
R 5,400 kg GH¢2.20

Required:
i) Calculate the price variance for each material. (3 marks)
ii) Calculate the usage variance for each material. (3 marks)

b) Apagya Ltd has two product lines AB and CD. Time rate and piece rate labour rewarding systems are used for AB and CD products respectively.
Required:
Explain the terms time rate and piece rate, clearly outlining their differences and giving examples of business settings where each could be applied. (4 marks)

c) AB Ltd operates a 40-hour weekly work regime and rewards labour for all overtime worked at time and one-half.
The wage rate is GH¢80 per hour.
The following details are recorded for the month of October 2019 for an employee (Adamu):

Week Hours Worked
1 36
2 48
3 45
4 46

Required:
i) Compute the total direct labour costs for Adamu for the month of October 2019. (4 marks)
ii) Calculate the total indirect labour costs for Adamu for the month of October 2019. (4 marks)

d) Explain the treatment of overtime premium in accounting for labour costs. (2 marks)

 

b) Piece Rate
This is a wage reward system where labour is paid based on the volume of work done. Here, the output recorded is the reference point for measuring the wages payable to the employee but not the time spent. Examples of production settings where this rate system is applicable may include construction, manufacturing, food processing, etc. (2 marks)

Time Rate
This is a reward system that relates wages to the time spent by the employee. Example: hourly, daily, weekly, fortnightly, or monthly, depending on the nature of the employee’s skill. This is usually used in service firms such as accounting firms, hospitality services, law firms, etc. (2 marks)

c) AB Ltd
i) Computation of total direct labour costs for the month of October 2019

Week Hours Worked Calculation Cost (GH¢)
1 36 36 x GH¢80 2,880
2 48 48 x GH¢80 3,840
3 45 45 x GH¢80 3,600
4 46 46 x GH¢80 3,680
Total 14,000
(4 marks evenly spread using ticks)

ii) Computation of total indirect labour costs for the month of October 2019

Item Calculation Cost (GH¢)
Idle time 4 x GH¢80 320
Overtime premium (Week 2) 8 x GH¢80 x 50% 320
Overtime premium (Week 3) 5 x GH¢80 x 50% 200
Overtime premium (Week 4) 6 x GH¢80 x 50% 240
Total 1,080
(4 marks evenly spread using ticks)

d) Treatment of Overtime Premium in Accounting for Labour Costs
Overtime premium is generally accounted for as indirect labour costs. However, where overtime payments result from customer-specific requirements for the production of a product or job, then such overtime premium may be accounted for as direct labour.
(2 marks)

Take control of your business data with insight and in-depth understanding by taking this course. 

Services

Contact Info

  • +233203701923
    +233543919232
  • info@noohrabusiness.com

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope