Question

( show the formula in every step and from were the number come from)

standard Costing & Variance Analysis

Delic plc. is a manufacturer of cakes that makes a wide range of cakes. It operates a standard marginal cost accounting system. Given below, is information relating to one of its products, i.e. birthday cakes, which are made in one of the company departments:

Birthday cakes	Standard marginal product cost per unit ($)
Direct material (6 kgs at $4 per kg)	24
Direct labour (1 hour at $7 per hour)	7
Variable production overhead	3
total	34
Additional information Variable production overhead varies with direct labour hours of input Budgeted fixed production overhead per month is $100,000 Budgeted production for birthday cakes is 20,000 units per month Actual production and costs for one of the months were as follows: -           Units of birthday cakes produced                                           18,500 units

                                                                                                          $

Direct materials purchased and used, 113,500kg                       442,650

        Direct labour, 17,800 hours                                                   129,940

        Variable production overhead incurred                                    58,800

        Fixed production overhead incurred                                     104,000

                         total                                                                               735,390

Required:

1. Prepare a statement showing, by cost elements (i.e. direct materials; direct labour; variable overhead; and fixed overhead), the:
   1. original budget                                                                                                
   2. flexed budget                                                                                                  
   3. actual cost                                                                                                       
   4. total variances                                                                                             
2. To be more informative for managerial purposes, prepare the following variances:
   1. Material price variance                                                                                   
   2. Material usage variance                                                                                 

                (iii) Wage rate variance                                                                                        

1. Labour efficiency variance                                                                            
2. Variable overhead expenditure variance                                                        

                   vi) Variable overhead efficiency variance    

Answer 1

a)		Original Budget	Flexed Budget	Actual Cost	Total Variance
	Birthday cakes in units	20000	18500	18500
	Direct material cost	$           4,80,000	$          4,44,000	$     4,42,650	$              1,350	Favorable
		[24*20000]	[24*18000]
	Direct labor cost	$           1,40,000	$          1,29,500	$     1,29,940	$                  440	Unfavorable
		[7*20000]	[7*18500]
	Variable production overhead cost	$               60,000	$              55,500	$         58,800	$              3,300	Unfavorable
		[3*20000]	[3*18500]
	Fixed production overhead cost	$           1,00,000	$          1,00,000	$     1,04,000	$              4,000	Unfavorable
	Total cost of production	$           7,80,000	$          7,29,000	$     7,35,390	$              6,390	Unfavorable
b)	Direct material price variance = (Actual price-Standard price)*Actual quantity purchased =
	= (442650/113500-4.00)*113500 =	$               11,350	Favorable
	Direct material usage variance = (Actual quantity used-Standard quantity)*Standard price = (113500-18500*6)*4.00 =	$               10,000	Unfavorable
	Total direct materials cost variance = DM price variance+DM quantity variance = 11350-10000 =	$                 1,350	Unfavorable
	Direct labor rate variance = (Actual rate-Standard rate)*Actual DLH = (129940/17800-7.00)*17800 =	$                 5,340	Unfavorable
	Direct labor efficiency variance = (Actual DLH-Standard DLH)*Standard rate = (17800-18500*1)*7.00 =	$                 4,900	Favorable
	Total direct labor cost variance = DL price variance+DL efficiency variance = 5340-4900 =	$                     440	Unfavorable
	Variable factory overhead expenditure variance = Actual variable factory overhead-Actual hours * Standard variable overhead rate = 58800-17800*1*3 =	$                 5,400	Unfavorable
	Variable overhead efficiency variance = (Actual hours - Standard hours)*Standard VOH rate = (17800-18500*1)*3 =	$                 2,100	Favorable
	Total factory overhead cost variance = 3600-2100 =	$                 3,300	Unfavorable