- 15 Marks
Question
You are the Management Accountant of ABS Limited. The following computer printout shows details relating to June 2017.
Description | Actual | Budget |
---|---|---|
Sales volume (units) | 4,900 | 5,000 |
Selling price per unit (GH¢) | 11.00 | 10.00 |
Production volume (units) | 5,400 | 5,000 |
Direct materials: | ||
– Quantity (kg) | 10,600 | 10,000 |
– Price per kg (GH¢) | 0.60 | 0.50 |
Direct labour: | ||
– Hours per unit | 0.55 | 0.50 |
– Rate per hour (GH¢) | 3.80 | 4.00 |
Fixed overhead: | ||
– Production (GH¢) | 10,300 | 10,000 |
– Administration (GH¢) | 3,100 | 3,000 |
ABS Limited uses a standard absorption costing system. There was no opening or closing work-in-progress.
Required:
Prepare a statement that reconciles the budgeted profit with the actual profit for June 2017, showing individual variances in detail. (15 marks)
Answer
ABS Limited: Budgeted vs. Actual Profit Reconciliation Statement for June 2017
Description | Amount (GH¢) |
---|---|
Budgeted Profit (5,000 units @ GH¢5) | 25,000 |
Sales Volume Variance (100 units × GH¢5) | (500) |
Budgeted Profit on Actual Sales (4,900 units @ GH¢5) | 24,500 |
Variances:
- Sales Price Variance:
- Actual price per unit = GH¢11.00
- Budgeted price per unit = GH¢10.00
- Variance = (11.00 – 10.00) × 4,900 units = GH¢4,900 (Favorable)
- Direct Material Price Variance:
- Actual price per kg = GH¢0.60
- Budgeted price per kg = GH¢0.50
- Variance = (0.50 – 0.60) × 10,600 kg = GH¢1,060 (Adverse)
- Direct Material Usage Variance:
- Actual quantity = 10,600 kg
- Budgeted quantity = 10,000 kg
- Variance = (10,000 – 10,600) × GH¢0.50 = GH¢300 (Adverse)
- Direct Labour Rate Variance:
- Actual rate per hour = GH¢3.80
- Budgeted rate per hour = GH¢4.00
- Variance = (4.00 – 3.80) × 2,695 hours = GH¢539 (Favorable)
- Direct Labour Efficiency Variance:
- Actual hours per unit = 0.55 hours
- Budgeted hours per unit = 0.50 hours
- Variance = (0.50 – 0.55) × 4,900 units × GH¢4.00 = GH¢980 (Adverse)
- Fixed Overhead Expenditure Variance:
- Actual fixed production overhead = GH¢10,300
- Budgeted fixed production overhead = GH¢10,000
- Variance = GH¢300 (Adverse)
- Fixed Overhead Volume Variance:
- Actual production volume = 5,400 units
- Budgeted production volume = 5,000 units
- Variance = (5,400 – 5,000) × GH¢2.00 = GH¢800 (Favorable)
- Fixed Administration Overhead Expenditure Variance:
- Actual administration overhead = GH¢3,100
- Budgeted administration overhead = GH¢3,000
- Variance = GH¢100 (Adverse)
Total Variances:
- Favorable Variances Total: GH¢6,239
- Adverse Variances Total: GH¢2,740
- Net Variance: GH¢3,499 (Favorable)
Actual Profit:
- Budgeted Profit on Actual Sales: GH¢24,500
- Add: Net Favorable Variance: GH¢3,499
- Actual Profit: GH¢27,999
(15 marks)
- Topic: Standard Costing and Variance Analysis
- Series: MAY 2017
- Uploader: Dotse