In: Accounting
QUESTION 4
The underlisted data relate to actual output, costs and variances
for the monthly accounting
period of a company that makes only one product. Opening and
closing work in progress were
the same.
Variances:
GH₵
Direct materials price
30000 F
Direct materials usage
18000 A
Direct labour rate
16000 A
Direct labour efficiency
32000 F
Variable production overhead expenditure
12000 A
Variable production overhead efficiency
8000 F
Variable production overhead varies with labour hours worked.
A standard marginal costing system is operated.
Actual production of product BM
36,000 units
Actual costs incurred:
Direct materials purchased and used (300,000 kg)
GH₵420,000
Direct wages for 64000 hours
GH₵272,000
Variable production overhead
GH₵76,000
Required:
(a) (i)
Calculate the standard cost of materials and standard rate per
labour hour.
(ii)
Prepare a standard product cost sheet for one unit of product
BM.
(b) Explain the possible causes of the following variances:
(i)
Material price variance
(ii)
Material usage variance
(iii)
Wage rate variance
(iv)
Labour efficiency variance
(a) (i) Standard Cost of Materials:
Material Cost Variance = Material Price Variance + Material Usage Variance
Material Cost Variance = GH₵ 30,000 (F) + GH₵ 18,000 (A)
Material Cost Variance = GH₵ 12,000 (F).
Material Cost Variance = Standard Cost - Actual Cost
Material Cost Variance = (Standard Quantity X Standard Price) - (Actual Quantity X Actual Price)
GH₵ 12,000 (F) = Standard Cost - GH₵ 4,20,000
Standard Cost of Materials = GH₵ 4,32,000.
Standard Rate per Labour Hour:
Labour Rate Variance = ( Actual Hours X Standard Rate) - (Actual Hours X Actual Rate)
GH₵ 16,000 (A) = ( 64,000 hours X Standard Rate) - GH₵ 272,000
GH₵ 16,000 (A) = ( 64,000 hours X SR ) - GH₵ 272,000
( 64,000 hours X SR ) = GH₵ 16,000 (A) + GH₵ 272,000
( 64,000 hours X SR ) = GH₵ 256,000
Standard Rate (SR) = GH₵ 256,000 / 64,000 Hours
Standard Rate (SR) = GH₵ 4 per Labour Hour.
(ii) Standard Product Cost Sheet for ONE unit of Product BM
Particulars | Amount |
Direct Materials (GH₵ 4,32,000 / 36,000 Units) | GH₵ 12 |
Direct Labour | GH₵ 4 |
Variable Production Overhead (*Note 1) | GH₵ 1 |
Total Cost | GH₵ 17 |
*Note 1:
Variable Overhead Expenditure Variance = ( Actual Hours X Standard Rate) - (Actual Hours X Actual Rate)
GH₵ 12,000 (A) = ( 64,000 hours X Standard Rate) - GH₵ 76,000
GH₵ 12,000 (A) = ( 64,000 hours X SR ) - GH₵ 76,000
( 64,000 hours X SR ) = GH₵ 12,000 (A) + GH₵ 76,000
( 64,000 hours X SR ) = GH₵ 64,000
Standard Rate (SR) = GH₵ 64,000 / 64,000 Hours
Standard Rate (SR) = GH₵ 1 per Labour Hour
(b) Possible Causes:
(i) Material Price Variance:
(ii) Material Usage Variance:
(iii) Wage Rate Variance:
(iv) Labour Efficiency Variance: