Question

a) Rural Support Ltd has been successful in gaining a major contract to prepare and deliver meals to elderly and disabled people who reside in Windsor. These operations were previously managed by the Windsor Council, and the services were outsourced by the council as a cost-saving measure. Rural Support tendered a low price, so it is very focused on cost control. The following standard prices have been established for some major food ingredients:

	Standard price
Lamb roast	$16 per kilogram
Fish fillets	$24 per kilogram
Chips	$12 per kilogram
Mixed vegies	$10 per kilogram

Rural Support purchases the prepared food frozen in 10 kilogram containers, and kitchen staff produce a range of standard meals. Two popular meals are the lamb dinner and the fish dinner. The standard quantities used in these two meals are as follows:

Lamb dinner		Fish dinner
Lamb roast	200 grams	Fish fillets	350 grams
Mixed vegies	250 grams	Chips	300 grams
Chips	150 grams

During March, the company produced 500 lamb dinners and 800 fish dinners. Purchase and usage data for the major material ingredients during March follow:

	Purchases in March		Used in production
	Qty (kg)	$ per kg	(kg)
Lamb roast	250	16.80	105
Fish fillets	170	25.20	300
Chips	300	10.00	320
Mixed vegies	200	10.80	120

Required:

Calculate the total direct material quantity variance and price variances for March.

b) Part of your company’s accounting database was destroyed in the recent floods that spread through your town. You have been able to gather the following data from your files.

	Direct material	Direct labour
Standard quantity per unit of output	?	?
Standard price or rate per unit of input	$8 per kilogram	?
Actual quantity used per unit of output	?	3.5 hours
Actual price or rate per unit of input	$7 per kilogram	$21 per hour
Actual output	10 000 units	10 000 units
Direct material price variance	$30 000 F	–
Direct material quantity variance	?	–
Total of direct material variances	$10 000 F	–
Direct labour rate variance	–	?
Direct labour efficiency variance	–	$100 000 F
Total of direct labour variances	–	$ 65 000 F

Page 509

Required:

Reconstruct the remaining information (where there is a question mark) using the available data. All the raw material purchased during the period was used in production.

Answer 1

Part A
Material Variance
(Actual quantity used- Standard Qty for actual output )* standard cost per unit
Calculation of Standard Material required for actual Output
Raw Material	Per unit of Lamb Dinner (In grams)	500 Lamb Dinners	(In kgs)- A
Lamb Roast	200	100,000	100
Fish Fillets	-	-	-
Mixed Veggies	250	125,000	125
Chips	150	75,000	75
Raw Material	Per unit of Fish Dinner (In grams)	800 Lamb Dinners	(In kgs)- B
Lamb Roast	-	-	-
Fish Fillets	350	280,000	280
Mixed Veggies	-	-	-
Chips	300	240,000	240
Calculation of Material Variance
Raw Material	Total Standard Quantity (A+B): C	Total Actual Quantity (D)	Standard price per KG ( E)	Variance {(D-C)*E}
Lamb Roast	100	105	16	80
Fish Fillets	280	300	24	480
Mixed Veggies	125	120	10	(50)
Chips	315	320	12	60
				570	Unfavourable Variance
Price Variance
(Actual Price - Standard Price) * Qty purchased
Raw Material	Quantity Purchased	Standard price per KG	Actual Price per KG	Variance
Lamb Roast	250	16	16.8	200
Fish Fillets	170	24	25.2	204
Mixed Veggies	200	10	10.8	160
Chips	300	12	10	-600
				-36	Favourable Variance

Part B

Total Direct Material Variance = Direct Material Quantity Variance + Direct Material Price Variance
Now we have Price variance and total Direct Material Variance, then
Direct Material Quantity Variance = Total Material Variance - Material Price Variance
	= 30000- 10000
Direct Material Quantity Variance is $20,000 (f)
Material Price Variance = (Actual Price - Standard Price)* Qty Purchased
	-10000=( 7-8*)Quantity Purchased
Quantity Purchased = 10000 kgs
Hence, Quantity Used = 10000 kgs
Quantity used per unit of output = 1 kg
Material Qty Variance = (Actual Qty of Input- Standard Qty) * Standard price
-20000= (10000- Standard quantity)*8
Hence Total Standard Quantity = 12,500 kgs
Standard Qty per unit of output is 1.25 kgs
Total Labour Variance = Labour Efficiency Variance + Labour Rate Variance
Rate Variance = Total Labour Variance- Labour Efficiency Variance
	= -65000- (-100000)
Labour Rate variance is $35,000 (Unfavourble)
Now, total actual hours is 35000 hours (3.5 hours * 10000units)
Rate Variance = (Actual Rate per hour - Standard Rate Per hour) * Actual Hours
35000= ($21- Standard Rate)*35000
By solving above, Standard Rate per hour is $20 Per hour
Labour efficiency variance = (Actual Hours - Standard Hours) * Standard Rate per hour
-100000	= 35000- Standard hours * 20
By solving above, we get Standard hours = 40000 hours
Standard hours per unit of output= 4 hours