Question

Delta Company sell a product known as PATOIKA The standard cost for 1 unit being as follows:-

Direct Material A 20kg at Omani Rials 45 per kg                             900

Direct Material B 7 liters at Omani Rials 8 per liter                          56

Direct Labor 9 hours at Omani Rials 7 per hour                                63

Fixed Production Overhead (9hours * Rials 8)                                  72

Total Standard Cost                                                                          1,091

The fixed overhead included in the standard cost is based on an expected monthly output of 1400 units. Fixed production overhead is absorbed on the basis of direct labor hours.

During April, the actual results were as follows:

Production                               1600 units

Material A                               34,000 kg used, costing Omani Rials 1,500,000

Material B                               10,000 litres used, costing Omani Rials 100,000

Direct Labor                            15,000 hours worked for Omani Rials125,000

Fixed Production Overhead    Omani Rials 120,000

Required:

1. Calculate Price and Usage Variance for each Material
2. Calculate Labor Rate and Efficiency Variance
3. Calculate Fixed Productions Overhead Expenditure Variance.
4. Calculate Fixed Production Overhead Volume Variance.
5. Calculate Fixed Production Overhead Volume Efficiency Variance.
6. Calculate Fixed Production Overhead Volume Capacity Variance.

Answer 1

VARIANCE CALCULATIONS Amount Remarks (Omani Rials) Material Variances Price Variance (Std. Rate - Actual Rate)*Actual Qty Used A ( 45 Omani Rials - 44.12 Omani Rials)*34000kg 30002 Favourable B (8 Omani Rials - 10 Omani Rials)*10000litres -20000 Adverse 10002 Favourable Usage Variance (Std. Qty - Actual Qty.)*Std. Rate A (32000kg - 34000kg)*45 Omani Rials -90000 Adverse B (11200liters - 10000liters)*8 Omani Rials 9600 Favourable -80400 Adverse Labour Variances Rate Variance (Std. Rate - Actual Rate)*Actual Hours Worked (7 Omani Rials - 8.33 Omani Rials)*15000hrs. -20000 Adverse Efficiency Variance (Std. hrs - Actual hrs)*Std. Rate (14400 hrs - 15000hrs)*7 Omani Rials -4200 Adverse Fixed Production OH Variances Expenditure Variance Budgeted Expenditure - Actual Expenditure (1400units*72 Omani Rials) - 120000 Omani Rials -19200 Adverse Volume Variance (Std. hrs for Actual Output - Std. hrs for Std. Output)* Recovery Rate per hour [(1600units*9hrs per unit) - 12600hrs]*8 Omani Rials 14400 Favourable Capacity Variance (Actual Hrs. Worked - Std. hrs for Std. Output)* Recovery Rate per hour [15000hrs - (1400units*9hrs per unit)]*8 Omani Rials 19200 Favourable Efficiency Variance (Std. hrs for Actual Output - Actual hrs Worked)* Recovery Rate per hour (14400hrs.-15000hrs.)*8 Omani Rials -4800 Adverse

WORKING NOTES: Units Units Units 1400 1600 1600 Unit Rate Amount Unit Rate Amount Unit Rate Amount Material (Omani Rials) (Omani Rials) Material (Omani Rials) (Omani Rials) Material (Omani Rials) (Omani Rials) A 20 kg 45 900 A 32000 kg 45 1440000 A 34000 kg 44.1176 1500000 B 7 liter 8 56 B 11200 liter 8 89600 B 10000 liter 10.00 100000 Labour 9 hrs 7 63 Labour 14400 hrs 7 100800 Labour 15000 hrs 8.33 125000 Fixed OH 9 hrs 8 72 Fixed OH 14400 hrs 8 115200 Fixed OH 15000 hrs 8.00 120000 1091 1745600 1845000

Abbreviations Std. Standard hrs Hours OH Over Heads Qty Quantity