Question

The extracts given below were obtained from the records of Mountain View Ltd for the month of October 2019.

Extracts of Production and Sales Budget

Budgeted Production and Sales                                       4000 units

Kes per unit

Selling Price                                                                        600

Direct Material (14kgs@ Kes 40 perKg)                            560

Direct Labour 10 hrs@ Kes 20 per hour)                           200

Fixed overheads( 10 Direct labour hrs@ Kes24/hr)           240

Additional information is available as follows

Actual Production and Sales                                               4,400 units                                                                                                                   Kes per unit

Actual Selling price                                                                      580

Actual Costs

Direct Material 16Kgs@ Kes36 per Kg)                                      576

Direct Labour 8 hrs@ Kes 24 per hr)                                            192

Total actual fixed overheads for the month                                  260,000

Required

1. Direct material price and usage variances
2. Direct labour rate and efficiency variances
3. Fixed overhead expenditure, capacity and efficiency variances

Answer 1

SOLUTION:

1. Direct material price and usage variances

Direct Material Price Variance = Actual Quantity ( Standard Price - Actual Price)

= 4400 (600 - 580)

= 4400 (20)

= 88000 Favourable

Direct Material Usage Varaiace = Standard Price (Standard Quantity - Actual Quantity)

= 600 (4000 - 4400)

= 600 (-400)

= 240,000 Adverse

2. Direct labour rate and efficiency variances:

Direct labour rate variance = Actual Time * (Standard Rate - Actual Rate)

= (4400*8) ( 20 - 24)

= 35200 (-4)

= 140,800 Adverse

Direct labour efficiency variance = Standard Rate * (Standard Time - Actual Time)

= 20 (4000*10 - 4400*8)

= 20 (40000 - 35200)

= 20 (4800)

= 96000 Favourable

3. Fixed overhead expenditure, capacity and efficiency variances:

Fixed overhead expenditure variance = Budgeted Cost - Actual Cost

= (240*4000) - 260000

= 960000 - 260000

= 700000 Favourable

Fixed Overhead Efficiency Variance = Standard Rate * (Standard Time - Actual Time)

= 24 (4000*10 - 4400*8)

= 24 (40000 - 35200)

= 24 (4800)

= 115200 Favourable