F2 Management In Accounting Sir Ahmed Shafi

VARIANCES

1) MPV= Actual qty consumed/actual qty purchased x ( Actual price perkg-std price per kg)

2) MUV=Standard price per kg x( Actual Qty consumed-std Qty allowed)

Where:
Std Qty allowed=(Actual units produced x std qty Per unit)

3) LRV=Actual Hrs worked/Actual hrs paid x (Actual labrate per hr- std lab rate per hr)

4) LEV=Std lab rate per hr x( Actual Hrs worked- std hrs allowed)

Where:
Std hr allowed= (Actual units produced x std hrs Per unit)

5) V.O.H Expenditure Variance=(Actual V.OH –Budgeted V.OH based on actual hrs)

Where:

Budgeted V.OH based on actual hrs.= (Std V.OH rate per hr x(Actual hrs worked)

6) V.O.H Efficiency Variance = Std V.OH rate per hr x ( Actual hrs worked- std hrs allowed)

7) Fixed OH Expenditure Variance= Actual fixed OH-Budgeted fixed OH

Where:
Budgeted Fixed OH = Budgeted rate per unit x Budgeted units produced

8) Fixed OH Volume Variance=F.OH Budgeted rate per unit x (Budgeted prod-Actual Prod)

8a) F.OH Capacity Variance = F.OH Absorption rate/hr. x(Budgetedhrs.-Actual hrs.)

8b) F.OH Efficiency Variance=F.OH Absorption rate/hrx(Actual hrsworked-std hrsallowed)

9) Sales price variance= Actual Units Sold x (Std selling price/unit – Actual selling
price/unit)

10) Sales volume profit variance= Std profit/unitx(Budgeted sales units – Actual sales units)

11) Sales volume cont. variance= Std contribution/unit x (Budg sales units – Act sales units)

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12) Idle time variance= Idle hrsx Std labor rate/hr.

Q # 1 Following data is available:

Budget:

Production5000 units
Sales4500 units
Mat 5 Kgs @ 8/ kg -------------------------- $40
Lab 3 hrs @ $6 /hr -------------------------- $18
V. OH 3hrs@ 5/hr ------------------------------- $15
F.OH 3 hrs @ $9/hr ---------------------------- $27

Planned Selling price is $115/unit

Actual:

 4800 units were produced & 4750 units were sold for $543875
 24500 kgs were purchased for $196490 but only 23800 kgs were consumed
 14600 were paid $80300 but nly 14500 hrs were worked
 V.OH were $70000
 FOH were $125000

Required:
Operating statement under
(i) Absorption costing
(ii) Marginal costing

Example: Variances and operating statements:

sYdney manufactures one product, and the entire product is sold as soon as it is produced.
There are no opening or closing inventories and work in progress is negotiable. The company
operates a standard oustingsystem and analysis of variances is made every month. The
standard cost card for the product, aoomerang is as follows.

STANDARD COST CARD-BOOMERANG

Direct Materials 0.6 kilos at $4 per kilo $2.00

Direct wages 2 hours at $ 2.00 per hour $4.00
Variable overheads 2 hours at $0.30 per hour $0.60
Fixed overhead 2 hours at $3.70 per hour $7.40
Standard cost $14.00
Standard profit $6.00
Standing selling price $20.00

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Selling and administration expenses are not included in the standard cost, and are deducted
from profit as period charge.

Budgeted (planned) output for the month of June 20X7 was 5,100 Units. Actual results for
June 20X7 were as follows:

Production of 4,850 units were sold for $95,600

Materials consumed in production amounted to 2,300 Kgs at a total cost of $9,800
Labor hours paid for amounted to 8,500 hours at a cost of $16,800
Actual opening hours amounted to 8,000 hours.
Variable overheads amounted to $2,600.
Fixed overheads amounted to $42300.
Selling and administration expenses amounted to $18,000

Required:
Calculate all variances and prepare an operating statement for the month ended 30 June
20X7

1) For product DR the material price variance for the month of August was £1,000 (f) amd
the material usage variance was £300(A).

The standard material usage per unit is 3 kg, and standard material price is £2/kg. 500
units were produced in the period. Opening stock of raw material were 100 kg and
closing stock 400 kg.
Material purchases for the period were
A) 1,050 Kg
B) 1,350 Kg
C) 1,650 Kg
D) 1,950 Kg

2) The following information relates for a month’s production of product CN:

Budget Actual
Units produced 600 580
Input of Material 1500 1566
Cost of material P purchased and input£25,500 £25,839

What is the price variance for material P?

A) £ 783 F
B) £ 339 A
C) £ 1,185 A
D) £ 1, 972 A

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3) Direct Labor cost data relating to last month is as follow:

Actual Hours worked 28,000
Total Direct Labor cost £117,600
Direct Labor rate variance £8,400 A
Direct Labor Efficiency Variance £3,900 F
To the nearest thousand hours, what were the standard labor hours for actual production last
month?
A) 31,000 Hours
B) 29,000 Hours
C) 27,000 Hours
D) 25,000 Hours

4) In a period 11,280 Kgs of material were used at a total standard cost of £46,248. The
MUV was£492 A.

What was the standard allowed quantity of material for the period?

A) 11,250 kgs
B) 11,280 kgs
C) 11,400 kgs
D) 11,160 kgs

5) During a period 17,500 labor hours were worked at standard cost of $6.50/hour. The
labor efficiency variance was $7,800 F.

How many standard hours were used for actual production?

A) 12000
B) 16,300
C) 17,500
D) 18,700

6) ABC Ltd uses standard costing. It purchases a small component for which the following
data are available.

Actual purchase quantity 6,800 units

Standard allowance for actual production 5,440 units
Standard price 85 pence per unit
Purchase price variance £544 A
What was the actual price/unit?

A) £ 0.75
B) £0.77
C) £0.93
D) £0.95

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7) AB purchased a quantity of materials costing £43,250. The standard cost was £2.00 per
kg and there was an adverse price variance £3250.

How many kgs were produced?

A) 20000
B) 21,625
C) 23,250
D) 24,875

8) F Ltd has the following budget and actual data:

Budgeted Fixed OH cost. £100,000

Budgeted production units 20,000
Actual fixed OH cost £110,000
Actual production (units) 19500
The fixed OH volume variance is

(A) £ 500 A
(B) £2,500 A
(C) £10,000 A
(D) £17,500 A

9) JDC operates a standard cost accounting system. The following information has been
extracted from its standard cost card and budget.

Budgeted sales volume 5000 units

Budgeted SP £10.00 /unit
Standard Variable cost £5.60/unit
Standard total cost £7.50 unit

If it used a standard marginal costing system and its actual sales were 4500 units at a selling price of
£12.00 it sales volume variance would be:

A) £1,250 A
B) £2,200 A
C) £2,250 A
D) £3,200 A

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10) QR Ltd uses a standard absorption costing system. The following details have been
extracted from
Its budget for April 20X7

Fixed production OH Cost £48,000

Production (units) £4,800

In April 20X7 the fixed production OH cost was under absorbed by £8,000 and the fixed
production OH expenditure variance was £2000 adverse.

The actual number of units produced was:

A) 3,800
B) 4,000
C) 4,200
D) 5,400

11) Trim Ltd.’s material price variance for the month of Jan was £1,000 F and the usage
variance was £200 F.

The standard material usage per unit is 3 kg and the standard material is £2 /kg.500
units were produced in the period. Opening stock of raw material were 100 kg and
closing stock 300 kg.

Material purchased in the period:

A) 1,200 KG
B) 1,400 KG
C) 1,000 KG
D) 1,600 KG

12) The following information relates to R plc for October 20X7:

 Bought 7,800 kg of material R at a total cost of £16,380.

 Stocks of material R increased by 440 kg
 Stock of material R were valued using standard purchase price
 Material price variance was 1,170 A.

The standard price/kg for material R is

A) £1.95
B) £2.10
C) £2.23
D) £2.25

13. XY Ltd purchased 6,850 kgs of material at a total cost of £21,920. The material price
variance was £1,370 F. The standard price per kg was:

A) £0.20
B) £3.00
C) £3.20
D) £3.40

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13) XYZ uses standard costing. It makes an assembly for which the following standard data
are available:

Standard labor hours per assembly 24

Standard labor rate per hour £8
During a period 850 assemblies were made, there was Nil rate varianceand an adverse
efficiency variance of £4400
How many actual hours were worked?

A) 19850
B) 20400
C) 20950
D) 35720

(Past Papers)

226 The following information relates to labour costs for the past month:
Budget Labour rate $10 per hour
Production time 15,000 hour
Time per unit 3 hours
Production units 5000 untis

Actual Wages paid £176,000

Production 5500 units
Total hours worked 14,000 hours
There was no idle time.
What were the labour rate & efficiency variance?

Rate Variance Efficiency Variance

A $26,000 adverse $25000 favorable
B $26,000 adverse $10,000 favorable
C $36,000 adverse $2,500 favorable
D $36,000 adverse $25,000 favorable

227 A company operates a standard marginal costing system. Last month its actual fixed
overhead expenditure was 10% above budget resulting in a fixed overhead expenditure variance of
$36,000.

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What was the actual expenditure on fixed overheads last month?

A $324,000
B $360,000
C $396,000
D $400,000

228 FGH has the following budgeted and actual data:

Budgeted fixed overhead cost $120,000

Budgeted production (units) 20,000
Actual fixed overhead cost $115,000
Actual production (units) 21000
The fixed overhead volume variance:

A is $4,500 adverse
B is $5,500 favorable
C is $6,000 favorable
D is $10,500 favorable

229 A company budgeted to make 30,000 units of a product P. Each unit was expected to take 4
hours to make and budgeted fixed overhead expenditure was $840,000. Actual production of
product P in the period was 32,000 units, which took 123,000 hours to make. Actual fixed overhead
expenditure was $885,600.
What was the fixed overhead capacity variance for the period?
A $21,000 favorable
B $21,000 adverse
C $35,000 adverse
D $56,000 favorable

230 QRL uses a standard absorption costing system. The following details have been extracted
from its budget for April 20X7:
Fixed production overhead cost $48,000
Production (units) 4,800
In April 20X7 the fixed production overhead cost was under absorbed by $8,000 and the fixed
production overhead expenditure variance was $2000 adverse.
The actual number of units produced was:

A 3,800
B 4,000
C 4,200
D 5,400

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233 A company has a higher than expected staff turnover and as a result staff are less
experienced than expected.
As an indirect result of this, are the labour rate variance and material usage variance likely to be
adverse or favorable?

Labour Rate Material Usage

A Favorable Favorable
B Adverse Favorable
C Favorable Adverse
D Adverse Adverse

234 A company is obliged to buy sub-standard material at lower than standard price because
nothing else is available.
As an indirect result of this purchase, are the materials usage variances and labour efficiency
variance likely to be adverse or favorable

Material Usage Labour Efficiency

A Favorable Favorable
B Adverse Favorable
C Favorable Adverse
D Adverse Adverse

235 Fawley’s direct labour cost data relating to last month were as follows:
Standard labour cost of actual hours worked $116,000
Standard hours worked 30,000
Standard rate per hour $4
Labour rate variance $5,800 favorable
Labour Efficiency variance $4,000 favorable
The actual rate of pay per hour was:
A $3.80
B $3.81
C $3.94
D $3.99

236 Michel has the following results.

10,080 hours actually worked and paid costing $8,770
If the rate variance is $706 adverse, the efficiency variance $256 favorable, and 5,000 units were
produced, what is the standard production time per unit?
A 1.95 hour
B 1.96 hour
C 2.07 hour
D 2.08 hour

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237 An extract from the standard cost card for the product CJ is as follows:
Direct labour (0.5 hours x $12)
710 units of CJ were produced in the period and staff were paid 378 hours at a total cost of $4725.
Of these hours 20 were lost due to material shortage.
A labour efficiency variance is:
A $516 favorable
B $36 favorable
C $36 adverse
D $516 adverse

238 A company makes a single product. The following details are form the cost card for the
product:
Direct labour 10 hours at $5 per hour
Variable overhead 10 hours at $1.50 per hour
The actual results for the last period are:
500 units produced
Labour 4,800 hours
Variable overheads $7,700
The variable overhead expenditure and efficiency variances are:

Expenditure Efficiency
A $300 A $500 F
B $300 F $500 A
C $500 A $300 F
D $500 F $300 A

239 A company uses standard absorption costing. The following data related to last month:

Budgeted Actual
Sales & production (units) 1000 900
Standard Actual
Selling price per unit $50 $52
Total production cost per unit 39 40
What was the adverse sales volume profit variance last month?

A $1,000
B $1,100
C $1,200
D $1,300

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240 A company operates a standard marginal costing system. Last month actual fixed overhead
expenditure was 2% below budget and the fixed overhead expenditure variance was $1,250.
What was the actual fixed overhead expenditure for the last month?

A $61,250
B $62,475
C $62,500
D $63,750

The following information related to question 243 and 244

The standard direct material cost for a product is $50 per unit (12.5 kg at 4 per kg). Last month the
actual amount paid for 45,600 kg of material purchased and used was $173,280 and the direct
material usage variance was $15,200 adverse

243 What was the direct material price variance last month?
A $8,800 adverse
B $8,800 favorable
C $9,120 adverse
D $9,120 favorable
244 What was actual production last month?
A 3,344 units
B 3,520 units
C 3.952 units
D 4,160 units

246 QR has budgeted to produce 4,000 units in January. Actual production was 3,700 units with
fixed production overheads of $10,300. The standard fixed overhead cost per unit was 1.5 hours at
$2.40 hour. 5,800 actual production hours were worked
What was the fixed overhead volume variance?
A $1,080 favorable
B $480 favorable
C $480 adverse
D $1,080 adverse

248 The following information related to April production CK:

Actual Budget
Units produced 580 600
Input of material (kg) 1,566 1,500
Cost of material purchased and input $77,517 $76,500

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What is the material usage variance?

A $2,349 favorable
B $4,400 adverse
C $6,749 adverse
D $5,916 adverse

249 For product DR, the material price variance for the month of August was $1,000 (favorable)
and the material usage variance was $300 (adverse)
The standard material usage per unit is 3kg, and the standard material price is $2k per kg. 500 units
were produced in the period. Opening inventories of raw materials were 100kg and closing
inventories 400kg.
Material purchases in the period were:
A 1,050 kg
B 1,350 kg
C 1,650 kg
D 1,950 kg

250 The following information related to a month’s production of product CN:

Budget Actual
Units produced 600 580
Input of material P (kg) 1,500 1,566
Cost of material P purchased and input $25,500 $25,839
What is the price variance for material P?

A $783 favorable
B $339 adverse
C $1,189 adverse
D $1,972 adverse

251 A company uses variance analysis to control costs and revenues.

Information concerning sales is as follows:

Budgeted selling price $15 per unit

Budgeted sales units 10,000
Budgeted profit per unit $5
Actual sales revenue $151,500
Actual units sold 9,800

What is the sales volume profit variance?

A $500 favorable
B $1,000 favorable

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C $1,000 adverse
D $3,000 adverse

252 A company operates a standard absorption costing system. The standard fixed production
overhead rate is $15 per hour.
The following data relates to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual prod 4,800

What was the fixed production overhead capacity variance?

A $7,500 adverse
B $7,500 favorable
C $10,500 adverse
D $10,500 favorable

253 Direct labour cost data relating to last month is as follows:

Actual hours worked 28,000
Total direct labour cost $117,600
direct labour rate variance $8,400 adverse
direct labour efficiency variance $3,900 favorable
To the nearest thousand hours, what were the standard labour hours for actual production last
month?
A 31,000 hrs
B 29,000 hrs
C 27,000 hrs
D 25,000 hrs

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