Question

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.

Delic. PLC Flexible Budget Performance Report For the month of ...
	Actuals	Spending Variances	Flexible Budget	Volume Variances	Original Budget
Activity Level	18,500 cakes		18,500 cakes		20,000 cakes
Costs	$	$	$	$	$
Direct Materials	442,650	1,350 F	444,000	36,000 F	480,000
Direct Labor	129,940	440 U	129,500	10,500 F	140,000
Variable Production Overhead	58,800	3,300 U	55,500	4,500	60,000
Fixed Production Overhead	104,000	4,000 U	100,000	None	100,000
Total Cost	735,390	6,390 U	729,000	51,000 F	780,000

b.

	Type of Variance	Computation	Amount of Variance	Total
i.	Material Price Variance	$ ( 4.00 - 3.90) * 113,500 kg	$ 11,350 F
ii.	Material Usage Variance	( 18,500 x 6 kg - 113,500 kg ) * $ 4.00	10,000 U
	Direct Materials Spending Variance			$1,350 F
iii.	Wage Rate Variance	$ ( 7.00 - 7.30 ) * 17,800 hrs	5,340 U
iv.	Labor Efficiency Variance	( 18,500 x 1 - 17,800) * $ 7.00	4,900 F
	Direct Labor Spending Variance			440 U
v.	Variable Overhead Expenditure Variance	$ ( 3 x 17,800 - 58,800)	5,400 U
vi.	Variable Overhead Efficiency Variance	( 18,500 - 17,800) * $ 3.00	2,100 F
	Variable Overhead Spending Variance			3,300 U