TUTORIAL QUESTIONS
STANDARD COSTING
Question 1 (29 marks)
Ndou Financial Services CC uses a standard costing system in the manufacturing of
wall units. The standard cost per unit is as follow:
Wood: 30 meters @ R150 per meter
Direct labour 4 hours @ R30 per hour
Manufacturing overheads Variable: 4 hours @ R0.50 per LH
Fixed: 4 hours @ R15 per LH
Production units budgeted for the period 480 units
Actual results:
500 units were produced during the period, resulting in the following costs:
Wood used: 15 500 meters at a cost of R2 340 500
Hours worked: 1 950 hours at a cost of R60 450
Manufacturing overheads: variable, R897
Fixed, R31 000
Required:
a) Prepare a standard and actual cost sheet for variable costs. (9 marks)
b) Calculate the following variances:
(16 marks)
i. Material Price, Quantity and total variance
ii. Labour Rate Efficiency and total variance
iii. Variable manufacturing recovery Rate, Efficiency and total variance
iv. Fixed manufacturing Expenditure variance.
c) List 4 possible causes of unfavourable direct labour efficiency variance.
(4 marks)
QUESTION 2 STANDARD COSTING 25 MARKS
AV Co manufactures one product, and the entire product is sold as soon as it is produced.
There is no opening or closing inventories and work in progress is negligible. The company
operates a standard costing system and analysis of variances is made every month. The
standard cost card for a product is as follows.
STANDARD COST CARD
R
Direct materials 0.5 kilos at R4 per kilo 2.00
Direct wages 2 hours at R8.00 per hour 16.00
Variable overheads 2 hours at R0.30 per hour 0.60
Standard variable cost 18.60
Standard contribution 13.40
Standing selling price 32.00
Budgeted output for the month of June 2011 was 5,100 units. Actual results for June 2011
were as follows:
Production of 4,850 units was sold for R150, 350.
Materials consumed in production amounted to 2,300 kgs at a total cost of R9, 800.
Labour hours paid for amounted to 8,500 hours at a cost of R67, 800.
Actual operating hours amounted to 8,000 hours.
Variable overheads amounted to R2, 600.
Required:
Calculate all variances and prepare an operating statement for the month ended 30 June
20X7
MEMO
Question 1 (29 marks)
a) Standard and actual cost sheet for variable costs only.
Standard Actual
SQ/u Price cost AQ/u Price or cost
or per unit rate
Variable cost components rate per unit
Wood 30 m R150 R4 500 31 m R151 R4681
Direct labour 4 hrs R30 R120 3.9 hrs R31 R120.90
Variable manuf OH 4 hrs R0.50 R2.00 3.9 hrs R0.46 R1.80
b) Variances
i. Material variances:
Price Quantity
(AP – SP) AQ (AQ – SQ) SP
(R151 – R150) 15 500 meters (15 500 – 15 000) R150
= R15 500 (U) = 75 000 (U)
Total material variance: R15 500 (U) + R75 000 (U) = R90 500 (U)
ii. Labour variances:
Rate Efficiency
(AR – SR) ALH (ALH – SLH) SR
(R31 – R30) 1950 hrs (1 950 – 2 000) R30
= R1 950 (U) = R1 500 (F)
Total labour variances: R1 950 (U) + R1 500 (F) = R450 (U).
iii. Variable manufacturing overheard variances:
Rate Efficiency
(AR – SR) AT (AT – ST) SR
(R0.46 – R0.50) 1 950 hrs (1 950 – 2 000) R0.50
= R78 (F) = R25 (F)
Total VMOH variance: R78 (F) + R25 (F) = R103 (F)
iv. Fixed manufacturing overheard variance:
Actual fixed overheard less Budgeted fixed overheard
R31 000 – R28 800
= R2 200 (U)
c) Possible reasons for unfavourable direct labour efficiency variance:
- Lower skilled workers taking longer to complete their tasks;
- Lower quality material causing scrap and re-work;
- Faulty equipment causing breakdowns and work interruptions;
- Poor supervision of workers; and
Incorrect standards established.
QUESTION 2 25 MARKS
Solution
(a) R
2,300 kg of material should cost (× R4) 9,200
but did cost 9,800
Material price variance 600 (A)
(b) 4,850 units should use (× 0.5 kgs) 2,425 kg
but did use 2,300 kg
Material usage variance in kgs 125 kg (F)
× standard price per kg X R4
Material usage variance in R500 (F)
FAST FORWARD
1 83
(c) R
8,500 hours of labour should cost (× R8) 68,000
but did cost 67,800
Labour rate variance 200 (F)
(d) 4,850 units should take (× 2 hrs) 9,700 hrs
but did take (active hours) 8,000 hrs
Labour efficiency variance in hours 1,700 hrs (F)
× standard rate per hour × X R8
Labour efficiency variance in R R13, 600 (F)
(e) Idle time variance 500 hours (A) × R8 R4, 000 (A)
(f) R
8,000 hours incurring variable o/hd expenditure should cost (× R0.30) 2,400
but did cost 2,600
Variable overhead expenditure variance 200 (A)
(g) Variable overhead efficiency variance in hours is the same as the
labour efficiency variance:
1,700 hours (F) × R0.30 per hour R 510 (F)
(h) R
Revenue from 4,850 units should be (× R32) 155,200
but was 150,350
Sales price variance 4,850 (A)
(i)
Budgeted sales volume 5,100 units
Actual sales volume 4,850 units
Sales volume contribution variance in units 250 units (A)
× standard contribution per unit × R13.40
Sales volume contribution variance R3,350 (A)
Now let’s turn our attention to the operating statement.
There are several ways in which an operating statement can be presented. Perhaps the
most common format is one which reconciles budgeted contribution to actual
contribution.
• Budgeted contribution is adjusted by the sales volume variance to give the budgeted
contribution from actual sales.
• The sales price variance is then included to give a figure representing the actual sales
revenue minus the standard variable cost of sales.
• Cost variances are then taken into account to produce a figure for actual contribution.
AVHEANI CO – OPERATING STATEMENT JUNE 2011
R
Budgeted contribution (R13.40 × 5,100) 68,340
Sales volume variance 3,350 (A)
Budgeted contribution from actual sales 64,990
Sales price variance 4,850 (A)
Actual sales minus the standard variable cost of sales 60,140
Cost variances (F) (A)
R R
Material price 600
Material usage 500
Labour rate 200
Labour efficiency 13,600
Labour idle time 4,000
Variable overhead expenditure 200
Variable overhead efficiency 510
14,810 4,800 10,010 (F)
Actual contribution 70,150
Check R R
Sales 150,350
Materials 9,800
Labour 67,800
Variable overhead 2,600
80,200
Actual contribution 70,150
