Question

SECTION B: MANAGEMENT ACCOUNTING
Question 1                                                 
You oversee the production facility of CC Compounders Ltd. CC Compounders Ltd
manufactures compound which is being used in various extrusion processes. You are preparing
for a management meeting. One of the points on the agenda is the explanation of the variance
between actual production cost and standard production cost and to decide on action plans to
address the reasons for the variance.
The following is the standard cost per 1 ton of compound:

	Per Unit	Price	Standard Cost per ton (R)
Material: AC1032 Powder	175kg	R 3.75/kg	656.25
Labour
Mixing Department	1.5 Hours	R125/hour	187.50
Overheads: Overheads are allocated based on actual labour hours.		175.00/hour	175.00/hour
Total standard cost per unit			1,106.25

Budgeted fixed costs amounts to R175,000 per month.
The cost clerk provided you with the following actual information for the month.

	Per Unit	Price	Total cost
Material: AC1032 Powder	185	R3.50/kg	809,375
Labour	2	R126.50/hour	316,250
Overheads			365,219
Fixed Costs			169,000

Production for the month was 1,250 units of compound.
Required:
1. Use standard cost variance analysis to analyse and explain the manufacturing variance.
(Show all your calculations as method marks are being awarded) (18)
2. Identify the two most important areas for management to focus on. Support your suggestion with reference to the relevant variance in point 1. (2)

Answer 1