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- 15 Marks
Question
Jungle Twist Ltd manufactures quality blocks for the housing industry in Ghana. It operates a standard marginal costing system. The following standard costs, volume, and revenue data for the quarter ending 31 October 2015 are provided:
Standard cost card:
- Selling price: GH¢18 per block
- Costs:
- Direct material P: 3 kg at GH¢2.60 per kg
- Direct material Q: 2 kg at GH¢2.50 per kg
- Direct labour: 2 hours at GH¢0.60 per hour
- Variable overheads: GH¢0.50 per direct labour hour
- Budgeted sales for the quarter: 62,500 blocks
- Variable overheads are absorbed at the rate of GH¢0.50 per direct labour hour.
- Fixed production overhead for the quarter is estimated to be GH¢78,500.
The following actual results were recorded for the quarter just ended 31 October 2015:
- Production: 60,000 blocks
- Sales: 58,000 blocks
- Selling price: GH¢17.00 per block
- Direct material P: 150,000 kg were bought and used at GH¢360,000
- Direct material Q: 109,000 kg were bought and used at GH¢327,000
- Direct labour: 108,000 hours were worked for at a cost of GH¢90,400
- Variable overheads: GH¢82,000
- Fixed production overheads: GH¢80,000
Required:
Calculate the following variances for the quarter just ended 30 September 2015:
i) Sales volume and sales price variances; (3 marks)
ii) Price and usage variances for each material; (3 marks)
iii) Mix and yield variance for each material; (3 marks)
iv) Labour rate, labour efficiency, and idle time variances; (3 marks)
v) Variable overheads expenditure and variable overheads efficiency variances. (3 marks)
Answer
i) Sales Volume and Sales Price Variances:
- Sales Volume Variance:
Budgeted sales units: 62,500
Actual sales units: 58,000
Variance in units: 4,500A
Standard contribution margin: GH¢3
Variance: GH¢13,500A - Sales Price Variance:
58,000 units should have been sold for (58,000 x GH¢18) = GH¢1,044,000
But were sold for (58,000 x GH¢17) = GH¢986,000
Variance: GH¢58,000A
ii) Price and Usage Variances for Each Material:
- Material Price Variances:
- Material P:
Actual purchases should have cost (150,000 x GH¢2.60) = GH¢390,000
But did cost GH¢360,000
Variance: GH¢30,000F - Material Q:
Actual purchases should have cost (109,000 x GH¢2.50) = GH¢272,500
But did cost GH¢327,000
Variance: GH¢54,500A
- Material P:
- Material Usage Variances:
- Material P:
60,000 units should have used (60,000 x 3kg) = 180,000 kg
But did cost 150,000 kg
Variance: 30,000 kg F
Standard price: GH¢2.60
Variance: GH¢78,000F - Material Q:
60,000 units should have used (60,000 x 2kg) = 120,000 kg
But did cost 109,000 kg
Variance: 11,000 kg F
Standard price: GH¢2.50
Variance: GH¢27,500F
- Material P:
iii) Mix and Yield Variance for Each Material:
- Material Mix Variance:
| Material | Actual Materials in Standard Mix (kg) | Actual Materials in Actual Mix (kg) | Difference (kg) | Standard Price (GH¢) | Variance (GH¢) |
|---|---|---|---|---|---|
| P | 155,400 | 150,000 | 5,400 F | 2.60 | 14,040 F |
| Q | 103,600 | 109,000 | 5,400 A | 2.50 | 13,500 A |
| Total Variance: | 540 F | 540 F |
- Material Yield Variance:
| Material | Expected Output (units) | Actual Output (units) | Difference (units) | Standard Yield Price (GH¢) | Variance (GH¢) |
|---|---|---|---|---|---|
| P | 30,000 | 36,000 | 6,000 F | 2.56 | 15,360 F |
| Q | 21,800 | 24,000 | 2,200 A | 2.56 | 5,632 F |
| Total Variance: | 20,992 F |
iv) Labour Rate, Labour Efficiency, and Idle Time Variances:
- Labour Rate Variance:
108,000 hours should have cost (108,000 x GH¢0.60) = GH¢64,800
But did cost GH¢90,400
Variance: GH¢25,600A - Labour Efficiency Variance:
60,000 units should have used (60,000 x 2hrs) = 120,000 hours
But did cost 108,000 hours
Variance: 12,000 hours F
Standard price: GH¢0.60
Variance: GH¢7,200F
v) Variable Overheads Expenditure and Efficiency Variances:
- Variable Overheads Expenditure Variance:
108,000 hours should have cost (108,000 x GH¢0.50) = GH¢54,000
But did cost GH¢82,000
Variance: GH¢28,000A - Variable Overheads Efficiency Variance:
60,000 units should have used (60,000 x 2hrs) = 120,000 hours
But did cost 108,000 hours
Variance: 12,000 hours F
Standard price: GH¢0.50
Variance: GH¢6,000F
(Total: 15 marks)
- Tags: Labour Variance, Material Variance, Overhead Variance, Sales Variance, Variance Analysis
- Level: Level 2
- Topic: Standard Costing and Variance Analysis
- Series: NOV 2016
- Uploader: Dotse