Q 21 A manufacturing company based in Tarkwa uses a standard absorption costing system in accounting...

Q 21

A manufacturing company based in Tarkwa uses a standard absorption costing system in accounting for its production costs.

The standard cost of a unit of product is as follows:

Standard Quantity Standard price/rate Standard Cost

Direct materials 5 kilos 6.00 30.00

Direct labour 20 kilos 4.00 80.00

Variable production overhead 20 kilos 0.20 4.00

Fixed production overhead 20 kilos 5.00 100.00

The following data related to period 1:

Budgeted output 25,000 units

Actual output – produced 20,000 units

Units sold 15,000 units

Materials put into production 120,000 kilos

Materials purchased 200,000kilos

Direct labour hours paid 500,000hours

Due to a power failure 10,000 hours were post

Cost of materials purchased and used GHS825,000

Rate per direct labour hour GHS5

Variable production overhead GHS70,000

Fixed production overhead GHS2,100,000

Required:

The materials price variance
The material usage variance
The direct labour rate variance
The direct labour idle time variance
The direct labour efficiency variance
The variable overhead total cost variance
The fixed overhead expenditure variance
The fixed overhead volume variance
The total manufacturing cost variance

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Expert Solution

ekkarill92 answered 3 years ago

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	Cost card
	Particulars	Standard cost for actual production	Particulars	Actual cost
	Quantity & hour	Rate($/lb & $/hr)	Amount	Quantity & hour	Rate($/lb & $/hr)	Amount
	Direct Material	100000.00	6.00	$ 6,00,000	Material purchased	2,00,000.00	6.88	$ 13,75,000.00
		(20,000 unit * 5 Kg)			Material used	1,20,000.00	6.88	$ 8,25,000.00
					Closing material	80,000.00		$ 5,50,000.00

	Direct labour	400000.00	4.00	$ 16,00,000	Direct labour	4,90,000.00	5.00	$ 24,50,000.00
		(20,000 unit * 20 hr)

	Variable overhead	400000.00	0.20	$ 80,000	Variable overhead	4,90,000.00	0.14	$ 70,000.00

	Fixed overhead			$ 25,00,000	Fixed overhead			$ 21,00,000.00
	Total Standard manufacturing cost	$ 47,80,000
		Budgeted unit		25,000
		Actual unit		20,000

	Computation of variances:
1	*Material Price variance = (Standard rate - Actual rate) Actual quantity purchase**

	Material Price variance = ($6 - $6.875) X 200000 kilos = $-175000 (Unfavourable)

2	*Material efficiency variance = (Standard Quantity - Actual Quantity used) Standard rate**

	Material efficiency variance = (100000 kilos - 120000 kilos ) X $6 = $-120000 (Unfavourable)

3	*Labor Rate variance = (Standard rate - Actual rate) Actual hours**

	Labor Rate variance = ($4/hr - $5/hr) X 490000 hr = $-490000 (Unfavourable)

4	*Labor efficiency variance = (Standard Hours - Actual Hours) Standard rate**

	Labor efficiency variance = (400000 hr - 490000 hr) X $4/hr = $-360000 (Unfavourable)

5	*Variable Overhead rate variance = (Standard rate - Actual rate) Actual hour used**

	Variable Overhead rate variance = ($0.2/hr - $0.142857142857143/hr) X 490000 hr = $28000 (Favourable)

6	*Variable overhead efficiency variance = (Standard hour - Actual hour) Standard rate**

	Variable overhead efficiency variance = (400000 hr - 490000 hr) X $0.2/hr = $-18000 (Unfavourable)

7	Fixed Overhead Budget variance = (Actual Fixed overhead - Budgeted Fixed overhead

	Fixed Overhead Budget variance = ($2100000 - $2500000) = $400000 (Favourable)

8	*Fixed overhead Volume variance = (Actual output - Budgeted output) Budgeted Overhead rate**
	Fixed overhead Volume variance = (20000 unit - 25000 unit ) X ($2500000 / 25000 unit ) = $-500000 (Unfavourable)