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- 10 Marks
Question
b) Zip Ltd, a premium food manufacturer, is reviewing its operations for a three-month period for 2019. The company operates a standard marginal costing system and manufactures one product, ZP, for which the following standard revenue and cost data per unit of product is available:
- Selling price: GH¢12.00
- Direct material A: 2.5 kg at GH¢1.70 per kg
- Direct material B: 1.5 kg at GH¢1.20 per kg
- Direct labour: 0.45 hours at GH¢6.00 per hour
- Fixed production overheads for the three-month period were expected to be GH¢62,500.
Actual data for the three-month period was as follows:
- Sales and production: 48,000 units of ZP were produced and sold for GH¢580,800
- Direct material A: 121,951 kg were used at a cost of GH¢200,000
- Direct material B: 67,200 kg were used at a cost of GH¢84,000
- Direct labour: Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of GH¢117,120
- Fixed production overheads: GH¢64,000
Required: Calculate the following variances:
i) Sales volume contribution and sales price variances
ii) Price, mix, and yield variances for each material
iii) Labour rate, labour efficiency, and idle time variances
Answer
i) Sales Volume Contribution and Sales Price Variances
| Variance | Calculation | Result (GH¢) |
|---|---|---|
| Sales Volume Contribution Variance | (Budgeted sales volume – Actual sales volume) * Standard contribution per unit | (2,000 units) * GH¢3.25 = (GH¢6,500) (A) |
| Sales Price Variance | (Actual selling price per unit – Standard selling price per unit) * Actual units sold | (GH¢580,800 – GH¢576,000) = GH¢4,800 (F) |
ii) Price, Mix, and Yield Variances for Each Material
- Material A:
- Price Variance: (Standard cost – Actual cost) = (GH¢207,317 – GH¢200,000) = GH¢7,317 (F)
- Mix Variance: (Actual quantity – Standard quantity) * Standard cost per kg = 3,732 kg * GH¢1.70 = (GH¢6,344) (A)
- Yield Variance: (Standard quantity for actual output – Actual quantity) * Standard cost per unit = 712 units * GH¢6.05 = GH¢4,308 (F)
- Material B:
- Price Variance: (Standard cost – Actual cost) = (GH¢80,640 – GH¢84,000) = (GH¢3,360) (A)
- Mix Variance: (Actual quantity – Standard quantity) * Standard cost per kg = 3,732 kg * GH¢1.20 = GH¢4,478 (F)
- Yield Variance: (Standard quantity for actual output – Actual quantity) * Standard cost per unit = 712 units * GH¢6.05 = GH¢4,310 (F)
iii) Labour Rate, Labour Efficiency, and Idle Time Variances
| Variance | Calculation | Result (GH¢) |
|---|---|---|
| Labour Rate Variance | (Standard rate – Actual rate) * Actual hours paid | (GH¢115,200 – GH¢117,120) = (GH¢1,920) (A) |
| Labour Efficiency Variance | (Standard hours for actual output – Actual hours worked) * Standard rate per hour | (2,700 hours) * GH¢6 = GH¢16,200 (F) |
| Idle Time Variance | (Idle hours * Standard rate per hour) | (300 hours * GH¢6) = (GH¢1,800) (A) |
- Topic: Standard Costing and Variance Analysis
- Series: NOV 2020
- Uploader: Dotse