Question

1. Tropical ltd produces powder soap for households use. The standard direct costs per carton containing 20 packets of one kg each is as follows:

Raw materials

15 kgs of tallons @ sh 10 per kg

10 kgs of caustic soda @ sh 16 per kg

Labour 20 hours @ 5 per hour

Packed materials

20 packets @ 50 cents each

1 carton @ sh 5 each

The monthly budget is per 1,000 cartons. The overhead expenses which are all Fixed are budgeted at sh 40,000 and selling price per 1kg packet of soap is sh 25. the following details relate to October 2007 when 1,200 cartons of soap

            Were produced and sold

                                                                                                            Ksh

                        Sales 1,200 cartons                                                 552,000

                        Raw materials:

                                    Tallow 10,800 kgs                                       129,600

                                    Caustic soda 13200 kgs                             198,000

                                    Labour; 26,400 hours                                 145,200

                                    Fixed overhead expenditure                    42,000

            REQUIRED: calculate

1. Price and usage variances each raw materials.                
2. Labour rate and efficiency variances.                                 
3. Sales price and volume variances.                                       
4. Overhead expenditure variances.                                        

Answer 1

Raw material variances
Material Price Vaiance		=	(Standard Price - Actual Price ) * Actual Quantity
Material Usage Variance		=	( Standard Quantity - Actual Quantity ) * Standard Price
Std. cost per carton for 20 packs of 1 kg				Std. cost for 1200 carton			Actual cost for 1200 cartons
	Quantity	Rate	Amount	Quantity	Rate	Amount	Quantity	Rate	Amount
Tallons	15	10	150	18000	10	180000	10800	12	129600
			=15*10	=15*1200		=18000*10	Given	=129600/10800	Given
caustic soda	10	16	160	12000	16	192000	13200	15	198000
			=10*16	=10*1200		=12000*16	Given	=198000/13200	Given
For Tallons
Material Price Vaiance		=	=(10-12) * 10800		=	-21600	Adverse
Material Usage Variance		=	=(18000 - 10800) * 10		=	72000	Favourable
For Castic Soda
Material Price Vaiance		=	=(16 - 15) * 13200		=	13200	favourable
Material Usage Variance		=	=( 12000 - 13200 ) * 16		=	-19200	Adverse
Labour Variances
Std. cost per carton for 20 packs of 1 kg				Std. cost for 1200 carton			Actual cost for 1200 cartons
	Hours	Rate	Amount	Hours	Rate	Amount	Hours	Rate	Amount
Labour	20	5	100	24000	5	120000	26400	5.5	145200
			=20*5	=20*1200		=24000*5	Given	=145200/26400	Given
Labour Rate Vaiance		=	(Standard Rate - Actual Rate ) * Actual Hours
Labour efficiency Variance		=	( Standard Hours - Actual Hours ) * Standard Rate
Labour Rate Vaiance		=	=(5 - 5.5 ) * 26400		=	-13200	Adverse
Labour efficiency Variance		=	=(24000 - 26400) * 5		=	-12000	Adverse
Sales Variances
				Budgeted cost for 1000 carton			Actual cost for 1200 cartons
				Quantity	Rate	Amount	Quantity	Rate	Amount
				1000	500	500000	1200	460	552000
One kg of soup is 25, it is sold in carton containing 20 kgs. Hence per carton cost is : 25 * 20 = 500
Sales Price Var.		=	( Std. Price - Actual Price ) * Actual Sales
Sales Volume Var.		=	(Std. Quantity - Actual Quantity ) * Std. Rate
						-52000
Sales Price Var.		=	( 500 - 460 ) * 1200		=	48000	Favourable
Sales Volume Var.		=	( 1000 - 1200 ) * 500		=	-100000	Adverse
Overhead Expenditure Variances
		=	Std. Cost - Actual Cost
		=	40000 - 42000
		=	-2000	Adverse

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