Total Marks - 210.

Time Allowed - 4 hours 20 mins

QUESTIONS

13 Standard costing 17 mins

13.1 A company is in the process of setting standard unit costs for next period. Product J uses two types of
material, P and S. 7 kg of material P and 3 kg of material S are needed, at a standard price of $4 per kg
and $9 per kg respectively.
Direct labour will cost $7 per hour and each unit of J requires 5 hours of labour.
Production overheads are to be recovered at the rate of $6 per direct labour hour, and general overhead
is to be absorbed at a rate of ten per cent of production cost.
What is the standard prime cost for one unit of product J?

(2 marks)

13.2 What is an attainable standard?

 A standard which includes no allowance for losses, waste and inefficiencies. It represents the
level of performance which is attainable under perfect operating conditions
 A standard which includes some allowance for losses, waste and inefficiencies. It represents the
level of performance which is attainable under efficient operating conditions
 A standard which is based on currently attainable operating conditions
 A standard which is kept unchanged, to show the trend in costs (2 marks)

13.3 Which of the following statements is correct?

 The operating standards set for production should be the most ideal possible
 The operating standards set for production should be the minimal level
 The operating standards set for production should be the attainable level
 The operating standards set for production should be the maximum level (2 marks)

13.4 A company manufactures a carbonated drink, which is sold in 1 litre bottles. During the bottling process
there is a 20% loss of liquid input due to spillage and evaporation. What is the standard usage of liquid
per bottle (to two decimal places)?

litres
(2 marks)

13.5 Which of the following best describes management by exception?

 Using management reports to highlight exceptionally good performance, so that favourable results
can be built upon to improve future outcomes
 Sending management reports only to those managers who are able to act on the information
contained within the reports
 Focusing management reports on areas which require attention and ignoring those which appear
to be performing within acceptable limits
 Focusing management reports on areas which are performing just outside acceptable limits
(2 marks)

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13.6 Standard costing provides which of the following?

(i) Targets and measures of performance
(ii) Information for budgeting
(iii) Simplification of inventory control systems
(iv) Actual future costs
 (i), (ii) and (iii) only
 (ii), (iii) and (iv) only
 (i), (iii) and (iv) only
 (i), (ii) and (iv) only (2 marks)

13.7 A unit of product L requires 9 active labour hours for completion. The performance standard for product
L allows for ten per cent of total labour time to be idle, due to machine downtime. The standard wage
rate is $9 per hour. What is the standard labour cost per unit of product L?

$
(2 marks)

(Total = 14 marks)

14a Cost variances 46 mins

14a.1 A company manufactures a single product L, for which the standard material cost is as follows.
$ per unit
Material 14 kg $3 42
During July, 800 units of L were manufactured, 12,000 kg of material were purchased for $33,600, of
which 11,500 kg were issued to production.
SM Co values all inventory at standard cost.
What are the material price and usage variances for July?
Price Usage
 $2,300 (F) $900 (A)
 $2,300 (F) $300 (A)
 $2,400 (F) $900 (A)
 $2,400 (F) $840 (A) (2 marks)

The following information relates to questions 14a.2 and 14a.3.

A company expected to produce 200 units of its product, the Bone, in 20X3. In fact 260 units were produced.
The standard labour cost per unit was $70 (10 hours at a rate of $7 per hour). The actual labour cost was
$18,600 and the labour force worked 2,200 hours although they were paid for 2,300 hours.
14a.2 What is the direct labour rate variance for the company in 20X3?
 $400 (A)
 $2,500 (F)
 $2,500 (A)
 $3,200 (A) (2 marks)

14a.3 What is the direct labour efficiency variance for the company in 20X3?
 $400 (A)
 $2,100 (F)
 $2,800 (A)
 $2,800 (F) (2 marks)

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QUESTIONS

14a.4 Extracts from a company's records from last period are as follows.
Budget Actual
Production 1,925 units 2,070 units
Variable production overhead cost $11,550 $14,904
Labour hours worked 5,775 8,280
What are the variable production overhead variances for last period?
Expenditure Efficiency
 $1,656 (F) $2,070 (A)
 $1,656 (F) $3,726 (A)
 $1,656 (F) $4,140 (A)
 $3,354 (A) $4,140 (A) (2 marks)

14a.5 A company has budgeted to make and sell 4,200 units of product X during the period.
The standard fixed overhead cost per unit is $4.
During the period covered by the budget, the actual results were as follows.
Production and sales 5,000 units
Fixed overhead incurred $17,500
What are the fixed overhead variances for the period?
Fixed overhead Fixed overhead
expenditure variance volume variance
 $700 (F) $3,200 (F)
 $700 (F) $3,200 (A)
 $700 (A) $3,200 (F)
 $700 (A) $3,200 (A)
(2 marks)

14a.6 A company manufactures a single product, and relevant data for December is as follows.
Budget/standard Actual
Production units 1,800 1,900
Labour hours 9,000 9,400
Fixed production overhead $36,000 $39,480
What are the fixed production overhead capacity and efficiency variances for December?
Capacity Efficiency
 $1,600 (F) $400 (F)
 $1,600 (A) $400 (A)
 $1,600 (A) $400 (F)
 $1,600 (F) $400 (A) (2 marks)

14a.7 Which of the following would help to explain a favourable direct labour efficiency variance?
(i) Employees were of a lower skill level than specified in the standard
(ii) Better quality material was easier to process
(iii) Suggestions for improved working methods were implemented during the period
 (i), (ii) and (iii)
 (i) and (ii) only
 (ii) and (iii) only
 (i) and (iii) only (2 marks)

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14a.8 Which of the following statements is correct?

 An adverse direct material cost variance will always be a combination of an adverse material
price variance and an adverse material usage variance
 An adverse direct material cost variance will always be a combination of an adverse material
price variance and a favourable material usage variance
 An adverse direct material cost variance can be a combination of a favourable material price
variance and a favourable material usage variance
 An adverse direct material cost variance can be a combination of a favourable material price
variance and an adverse material usage variance (2 marks)

The following information relates to Questions 14a.9 and 14a.10.

A company has a budgeted material cost of $125,000 for the production of 25,000 units per month. Each unit
is budgeted to use 2 kg of material. The standard cost of material is $2.50 per kg.
Actual materials in the month cost $136,000 for 27,000 units and 53,000 kg were purchased and used.
14a.9 What was the adverse material price variance?

$
(2 marks)

14a.10What was the favourable material usage variance?

$
(2 marks)

14a.11The following information relates to labour costs for the past month:
Budget Labour rate $10 per hour
Production time 15,000 hours
Time per unit 3 hours
Production units 5,000 units

Actual Wages paid $176,000

Production 5,500 units
Total hours worked 14,000 hours
There was no idle time.
What were the labour rate and efficiency variances?
Rate variance Efficiency variance
 $26,000 Adverse $25,000 Favourable
 $26,000 Adverse $10,000 Favourable
 $36,000 Adverse $2,500 Favourable
 $36,000 Adverse $25,000 Favourable
(2 marks)

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QUESTIONS

14a.12 A manufacturing company operates a standard absorption costing system. Last month 25,000
production hours were budgeted and the budgeted fixed production overhead cost was $125,000.
Last month the actual hours worked were 24,000 and the standard hours for actual production were
27,000.
What was the fixed production overhead capacity variance for last month?
 $5,000 Adverse
 $5,000 Favourable
 $10,000 Adverse
 $10,000 Favourable (2 marks)

The following information relates to questions 14a.13 to 14a.15.

Number of units produced 2,200 2,000
Budget Actual
$ $
Direct materials 110,000 110,000
Direct labour 286,000 280,000
Variable overhead 132,000 120,000
The actual number of units produced was 2,000.
14a.13 What was the total direct materials variance?
 Nil
 $10,000 Adverse
 $10,000 Favourable
 $11,000 Adverse (2 marks)

14a.14 What was the total direct labour variance?

 $6,000 Favourable
 $20,000 Adverse
 $22,000 Favourable
 Nil (2 marks)

14a.15 What was the total direct variable overheads variance?

 Nil
 $12,000 Favourable
 $12,000 Adverse
 $11,000 Adverse (2 marks)

14a.16 Which of the following statements are true?

(i) A favourable fixed overhead volume capacity variance occurs when actual hours of work are
greater than budgeted hours of work
(ii) A labour force that produces 5,000 standard hours of work in 5,500 actual hours will give a
favourable fixed overhead volume efficiency variance
 (i) is true and (ii) is false
 Both are true
 Both are false
 (i) is false and (ii) is true (2 marks)

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14a.17 Which of the following statements are true?

(i) The fixed overhead volume capacity variance represents part of the over/under absorption of
overheads
(ii) A company works fewer hours than budgeted. This will result in an adverse fixed overhead
volume capacity variance
 (i) is true and (ii) is false
 Both are true
 Both are false
 (i) is false and (ii) is true (2 marks)

14a.18 The costs below relate to the month of June.

Fixed budget Flexed budget Actual
2,200 units 2,000 units 2,000 units
Total direct materials $165,000 $150,000 $140,000
What was the total direct material variance?
 $10,000 Adverse
 $10,000 Favourable
 $25,000 Adverse
 $25,000 Favourable (2 marks)

14a.19 The graph below shows the standard fixed overhead cost per unit, the total budgeted fixed overhead
cost and the actual fixed overhead cost for the month of December. The actual number of units
produced in June was 2,500 units.

20000

17500
Budgeted fixed
overhead cost
15000
Fixed
t
os

overhead Actual fixed

dc

cost 12500
overhead cost
ea
rh

$
o ve
ed

10000
fix
ard
nd
Sta

7500

5000

2500

1000 2000 3000 4000 5000 6000 7000 8000 9000 x

Number of units
What is the total fixed overhead variance?
 $2,500 Adverse
 $3,750 Favourable
 $5,000 Adverse
 $6,250 Favourable (2 marks)

(Total = 38 marks)

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QUESTIONS

14b Sales variances and operating statements 70 mins

14b.1 A company currently uses a standard absorption costing system. The fixed overhead variances extracted
from the operating statement for November are:
$
Fixed production overhead expenditure variance 5,800 adverse
Fixed production overhead capacity variance 4,200 favourable
Fixed production overhead efficiency variance 1,400 adverse
PQ Co is considering using standard marginal costing as the basis for variance reporting in future. What
variance for fixed production overhead would be shown in a marginal costing operating statement for
November?
 No variance would be shown for fixed production overhead
 Expenditure variance: $5,800 adverse
 Volume variance: $2,800 favourable
 Total variance: $3,000 adverse (2 marks)

14b.2 Which of the following situations is most likely to result in a favourable selling price variance?
 The sales director decided to change from the planned policy of market skimming pricing to one
of market penetration pricing.
 Fewer customers than expected took advantage of the early payment discounts offered.
 Competitors charged lower prices than expected, therefore selling prices had to be reduced in
order to compete effectively.
 Demand for the product was higher than expected and prices could be raised without adverse
effects on sales volumes. (2 marks)

The following information relates to questions 14b.3 to 14b.6.

A company manufactures a single product. An extract from a variance control report together with relevant
standard cost data is shown below.
Standard selling price per unit $70
Standard direct material cost (5 kg $2 per kg) $10 per unit
Budgeted total material cost of sales $2,300 per month
Budgeted profit margin $6,900 per month
Actual results for February
Sales revenue $15,200
Total direct material cost $2,400
Direct material price variance $800 adverse
Direct material usage variance $400 favourable
There was no change in inventory levels during the month.
14b.3 What was the actual production in February?

units
(2 marks)

14b.4 What was the actual usage of direct material during February?

kg
(2 marks)

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14b.5 What was the selling price variance for February?

 $120 (F)
 $900 (A)
 $1,200 (A)
 $1,200 (F) (2 marks)

14b.6 What was the sales volume profit variance for February?
 $900 (F)
 $1,200 (F)
 $900 (A)
 $2,100 (A) (2 marks)

14b.7 A company uses a standard absorption costing system. The following details have been extracted from
its budget for April.
Fixed production overhead cost $48,000
Production (units) 4,800
In April the fixed production overhead cost was under absorbed by $8,000 and the fixed production
overhead expenditure variance was $2,000 adverse.
What was the actual number of units produced?

units
(2 marks)

14b.8 A company purchased 6,850 kgs of material at a total cost of $21,920. The material price variance was
$1,370 favourable. What was the standard price per kg?

(2 marks)

14b.9 The following data relates to one of a company's products.

$ per unit $ per unit
Selling price 27.00
Variable costs 12.00
Fixed costs 9.00
21.00
Profit 6.00

Budgeted sales for control period 7 were 2,400 units, but actual sales were 2,550 units. The revenue
earned from these sales was $67,320.
Profit reconciliation statements are drawn up using marginal costing principles. What sales variances
would be included in such a statement for period 7?
Price Volume
 $1,530 (A) $900 (F)
 $1,530 (A) $2,250 (F)
 $1,530 (A) $2,250 (A)
 $1,530 (F) $2,250 (F) (2 marks)

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QUESTIONS

14b.10 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 units
Budgeted profit per unit $5 per unit
Actual sales revenue $151,500
Actual units sold 9,800 units
What is the sales volume profit variance?
 $500 Favourable
 $1,000 Favourable
 $1,000 Adverse
 $3,000 Adverse (2 marks)

The following information relates to questions 14b.11 and 14b.12.

The standard direct material cost per unit for a product is calculated as follows:
10.5 litres at $2.50 per litre
Last month the actual price paid for 12,000 litres of material used was 4% above standard and the direct
material usage variance was $1,815 favourable. No stocks of material are held.
14b.11 What was the adverse direct material price variance for last month?
 $1,000
 $1,200
 $1,212
 $1,260 (2 marks)

14b.12 What was the actual production last month (in units)?
 1,074
 1,119
 1,212
 1,258 (2 marks)

14b.13 Last month a company budgeted to sell 8,000 units at a price of $12.50 per unit. Actual sales last
month were 9,000 units giving a total sales revenue of $117,000.
What was the sales price variance for last month?
 $4,000 Favourable
 $4,000 Adverse
 $4,500 Favourable
 $4,500 Adverse (2 marks)

14b.14 A company uses a standard absorption costing system. Last month budgeted production was 8,000
units and the standard fixed production overhead cost was $15 per unit. Actual production last
month was 8,500 units and the actual fixed production overhead cost was $17 per unit.
What was the total adverse fixed production overhead variance for last month?

$
(2 marks)

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14b.15 A cost centre had an overhead absorption rate of $4.25 per machine hour, based on a budgeted
activity level of 12,400 machine hours.
In the period covered by the budget, actual machine hours worked were 2% more than the budgeted
hours and the actual overhead expenditure incurred in the cost centre was $56,389.
What was the total over or under absorption of overheads in the cost centre for the period?
 $1,054 over absorbed
 $2,635 under absorbed
 $3,689 over absorbed
 $3,689 under absorbed (2 marks)

14b.16 A company uses standard marginal costing. Last month the standard contribution on actual sales
was $10,000 and the following variances arose:
$
Total variable costs variance 2,000 Adverse
Sales price variance 500 Favourable
Sales volume contribution variance 1,000 Adverse
What was the actual contribution for last month?

$
(2 marks)

14b.17 AD Co manufactures and sells a single product, E, and uses a standard absorption costing system.
Standard cost and selling price details for product E are as follows.
$ per unit
Variable cost 8
Fixed cost 2
10
Standard profit 5
Standard selling price 15

The sales volume variance reported for last period was $9,000 adverse.
AD Co is considering using standard marginal costing as the basis for variance reporting in future.
What would be the correct sales volume variance to be shown in a marginal costing operating
statement for last period?
 $6,428 (A)
 $6,428 (F)
 $12,600 (F)
 $12,600 (A) (2 marks)

14b.18 When comparing the profits reported under absorption costing and marginal costing during a period
when the level of inventory increased, which of the following is true?
 Absorption costing profits will be higher and closing inventory valuations lower than those
under marginal costing.
 Absorption costing profits will be higher and closing inventory valuations higher than those
under marginal costing.
 Marginal costing profits will be higher and closing inventory valuations lower than those under
absorption costing.
 Marginal costing profits will be higher and closing inventory valuations higher than those
under absorption costing. (2 marks)

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QUESTIONS

14b.19 PH Co produces a single product and currently uses absorption costing for its internal management
accounting reports. The fixed production overhead absorption rate is $34 per unit. Opening
inventories for the year were 100 units and closing inventories were 180 units. The company's
management accountant is considering a switch to marginal costing as the inventory valuation basis.
If marginal costing were used, the marginal costing profit for the year, compared with the profit
calculated by absorption costing, would be which of the following?
 $2,720 lower
 $2,720 higher
 $3,400 lower
 $3,400 higher (2 marks)

14b.20 The budgeted contribution for HMF Co for June was $290,000. The following variances occurred
during the month.
$
Fixed overhead expenditure variance 6,475 Favourable
Total direct labour variance 11,323 Favourable
Total variable overhead variance 21,665 Adverse
Selling price variance 21,875 Favourable
Fixed overhead volume variance 12,500 Adverse
Sales volume variance 36,250 Adverse
Total direct materials variance 6,335 Adverse
What was the actual contribution for the month?
 $252,923
 $258,948
 $321,052
 $327,077 (2 marks)

14b.21 The following question is taken from the December 2011 exam.
A company calculates the following under a standard absorption costing system.
(i) The sales volume margin variance
(ii) The total fixed overhead variance
(iii) The total variable overhead variance
If a company changed to a standard marginal costing system, which variances could change in
value?
 (i) only
 (ii) only
 (i) and (ii) only
 (i), (ii) and (iii) (2 marks)

14b.22 The following question is taken from the December 2012 exam.
A company uses a standard absorption costing system. The following figures are available for the last
accounting period in which actual profit was $108,000.
$
Sales volume profit variance 6,000 adverse
Sales price variance 5,000 favourable
Total variable cost variance 7,000 adverse
Fixed cost expenditure variance 3,000 favourable
Fixed cost volume variance 2,000 adverse
What was the standard profit for actual sales in the last accounting period?
 $101,000
 $107,000
 $109,000
 $115,000 (2 marks)

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14b.23 The following question is taken from the July to December 2013 exam period.
A company uses a standard absorption costing system. Last month the actual profit was $500,000.
The only variances recorded for the month were as follows:
$'000
Sales volume profit variance 10 adverse
Fixed production overhead capacity variance 30 favourable
Fixed production overhead efficiency variance 40 adverse
Fixed production overhead volume variance 10 adverse
Fixed production overhead expenditure variance 50 favourable
Direct labour efficiency variance 15 adverse
What was the budgeted profit for last month?
 $485,000
 $495,000
 $505,000
 $515,000 (2 marks)

14b.24 The following question is taken from the January to June 2014 exam period.
A company uses a standard absorption costing system. Actual profit last period was $25,000, which
was $5,000 less than budgeted profit. The standard profit on actual sales for the period was
$15,000. Only three variances occurred in the period: a sales volume profit variance, a sales price
variance and a direct material price variance.
Which of the following is a valid combination of the three variances?
Sales volume Sales price Direct material
profit variance variance price variance
 $15,000 A $2,000 F $8,000 F
 $5,000 A $2,000 A $2,000 F
 $15,000 A $2,000 A $8,000 A
 $5,000 A $5,000 F $5,000 A (2 marks)

14b.25 The following question is taken from the July to December 2014 exam period.
A company’s actual profit for a period was $27,000. The only variances for the period were:
$
Sales price 5,000 adverse
Fixed overhead volume 3,000 favourable.
Fixed overhead capacity 4,000 favourable
Fixed overhead efficiency 1,000 adverse
What was the budgeted profit for the period?
 $25,000
 $26,000
 $28,000
 $29,000 (2 marks)

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QUESTIONS

14b.26 The following question is taken from the January to June 2015 exam period.
A company uses standard marginal costing. Its budgeted contribution for the last month was
$20,000. The actual contribution for the month was $15,000, and the following variances have
been calculated:

Sales volume contribution variance $5,000 adverse

Sales price variance $9,000 favourable
Fixed overhead expenditure variance $3,000 favourable
What was the total variable cost variance?
 $9,000 adverse
 $9,000 favourable
 $12,000 adverse
 $12,000 favourable (2 marks)

14b.27 The following question is taken from the January to June 2016 exam period.
The following variances occurred last period.
Sales volume contribution $20,000 favourable
Sales price $5,000 adverse
Total variable cost $18,000 favourable
Fixed cost expenditure $12,000 adverse
If the flexed budget contribution was $200,000, what was the actual contribution?
 $213,000
 $218,000
 $221,000
 $233,000 (2 marks)

14b.28 The following question is taken from the January to June 2017 exam period.
A firm uses standard marginal costing. Last period the following results were recorded:
Actual sales units 5,000
Standard contribution per unit $60
Sales price variance $5,000 Adverse
Sales volume contribution variance $8,000 Favourable
No other variances arose last period.
What was the actual contribution for the period?
 $295,000
 $305,000
 $303,000
 $297,000 (2 marks)

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14b.29 The following question is taken from the July to December 2017 exam period.
A company uses standard marginal costing to monitor performance. The budgeted profit and
budgeted fixed overhead for a month were $25,000 and $12,000 respectively. In the month, the
following variances occurred:
$
Sales volume contribution 1,000 Adverse
Sales price 2,000 Favourable
Total variable costs 4,000 Adverse
Fixed production overhead expenditure 500 Adverse
What was the actual profit for the month?
 $9,500
 $21,500
 $33,500
 $40,000 (2 marks)

(Total = 58 marks)

Important note
You have now reached the end of the multiple choice questions for Standard costing (Chapters 13 to 14b).
Make sure that you practise the multi-task questions on Standard costing in Section 24. The real exam will
contain three 10-mark multi-task questions on Budgeting, Standard costing and Performance measurement.

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QUESTIONS

24 Standard costing 120 mins

24.1 CT Co uses a standard absorption costing system and manufactures and sells a single product called the
DG. The standard cost and selling price details for the DG are as follows.
$ per unit
Variable cost 12
Fixed cost 4
16
Standard profit 6
Standard selling price 22
The sales volume variance reported in June was $12,000 adverse.
CT Co is considering using standard marginal costing as the basis for variance reporting in the future.
Task 1
Calculate the sales volume variance that would be shown in a marginal costing operating statement
for June.

Sales volume variance $ Adverse/Favourable

(2 marks)

Task 2
Which of the following would correctly calculate the fixed overhead volume variance?
 The difference between budgeted hours of work and the actual hours of work multiplied by the
standard absorption rate per unit.
 The difference between the fixed overhead incurred and the fixed overhead absorbed
 The difference between the budgeted fixed overhead expenditure and the actual fixed overhead
expenditure.
 The difference between actual and budgeted volume multiplied by the standard absorption rate
per unit.
(2 marks)

CT Co has found that it has had an increasing adverse labour efficiency variance for the last 6 months.
The company uses lots of temporary workers in a bid to meet sales demand for its main product.
Task 3
Which TWO of the following control actions could CT Co implement to try to eliminate this?

Increase the hourly rate paid to temporary workers

Offer overtime pay to the company’s existing skilled employees on a piecework basis
Implement training for the temporary employees
Reduce the number of supervisors (2 marks)

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Task 4
A company has budgeted material costs of $125,000 for the production of 25,000 units per month.
Each unit is budgeted to use 2 kg of material. The standard cost of material is $2.50 per kg. Actual
materials in the month cost $136,000 for 27,000 units and 53,000 kg were purchased and used.
What was the adverse material price variance?
 $1,000
 $3,500
 $7,500
 $11,000 (2 marks)

(Total = 10 marks)

24.2 Connolly uses standard costing to control its costs and revenues. A standard cost card for its only
product, the FY, is given below together with a standard cost operating statement for last month.
Standard cost card
$ per unit
Selling price 100
Direct materials 3kg @ $10/kg 30
Direct labour 1 hours @$10 per hour 10
Fixed overhead 2 hours @ $5 per hour 10
Profit 50
Standard cost operating statement
$ $ $
Budgeted profit 500,000
Sales volume variance 50,000 (A)
Standard profit on actual sales 450,000
Sales price variance 10,000 (F)
460,000
Production cost variances
Adverse Favourable
$ $
Material price 10,000
Material usage 8,000
Labour rate 2,000
Labour efficiency 1,000
Fixed overhead expenditure 2,000
Fixed overhead volume 1,000
13,000 11,000 2,000(A)
Actual profit 458,000
Task 1
Select the appropriate words, phrases or numbers to correctly complete the commentary on the last
month’s results.
Connolly uses standard Picklist 1 costing. In the last month actual selling price was Picklist 2 standard.
Actual units sold were Picklist 3 budgeted and actual sales revenue was $ Picklist 4.
Production was Picklist 5 than budgeted.

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 QUESTIONS

Materials caused the biggest cost variance, where a decision to pay Picklist 6 standard price resulted in
the company using Picklist 7 budget.
Picklist 1 absorption, marginal
Picklist 2 higher than, lower than, equal to
Picklist 3 1,000 less than, 1,000 more than, 500 less than, 500 more than
Picklist 4 $890,000, $910,000, $460,000, $458,000
Picklist 5 100 units less than, 100 units more than, 200 units less than, 200 units more than
Picklist 6 less than, more than
Picklist 7 800kg more than flexed budget, 800kg more than original budget, 600kg more than flexed
budget, 600kg more than original budget (10 marks)

(Total = 10 marks)

24.3 Ring Ring uses a standard cost operating statement to reconcile budgeted contribution with actual
contribution. A standard cost operating system for January has been partly completed but some
information is missing.
Standard cost card – Mobile phone $ per phone
Selling price 100
Direct material 25
Direct labour 10
Production overhead 15
Standard contribution 50
Actual and budgeted activity levels in units Budget Actual
Sales 20,000 21,500
Production 20,000 22,000
Actual sales revenue and variable costs $
Sales 2,128,500
Direct materials ( purchased and used) 565,000
Direct labour 210,000
Variable production overhead 325,000
Variances
Total direct materials variances 15,000 Adverse
Total direct labour variances 10,000 Favourable
Total variable production overhead variances 5,000 Favourable
Task 1
Complete the missing figures to be included in reconciliation for the standard cost operating statement
for January.

Sales volume variance $ Adverse/Favourable

Standard contribution on actual sales $
Sales price variance $ Adverse/Favourable
Actual contribution $
(8 marks)

Task 2
Which of the following would explain the sales volume variance achieved by Ring Ring?
 Budgeted sales units were greater than budgeted production units
 Actual sales units were greater than budgeted production units
 Actual sales units were greater than budgeted sales units
 Actual sales units were less than budgeted sales units
(2 marks)

(Total = 10 marks)

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24.4 Kubrick uses a standard absorption costing system to control the cost of its only product. The flexed
budget for production overhead for the company shows a budgeted total overhead cost of $200,000 per
period when 5,000 tonnes are produced and $264,000 per period when 9,000 tonnes are produced.
In Period 9, when the actual output was 6,500 tonnes, total actual overhead cost was $245,000
($125,000 fixed and $120,000 variable). The standard fixed overhead absorption rate is $24 per
tonne.
Task 1
Using the high-low technique, calculate the following:

The budgeted variable overhead per tonne. $

The budgeted fixed overhead per period. $

(4 marks)

Task 2
Calculate the following:

The fixed overhead expenditure variance. $ Adverse/Favourable

The fixed overhead volume variance. $ Adverse/Favourable

(4 marks)

Task 3
Which of the following would result in an over absorption of overheads?
 Absorbed overheads exceed actual overheads
 Actual overheads exceed absorbed overheads
 Budgeted overheads exceed absorbed overheads
 Actual overheads exceed budgeted overheads (2 marks)

(Total = 10 marks)

24.5 Mortensen manufactures wooden toys. It uses a standard costing system to control costs. The cutting
department cuts the shapes which are sold as toy animals.
$
Hardwood 16.00
Direct labour 30 minutes at $9 per hour 4.50
Fixed overhead 30 minutes at $4 per direct labour hour 2.00
22.50

Fixed overhead absorption rates are based upon monthly fixed overheads of $26,000 and a budgeted
monthly output of 13,000 sets of animals.
In the most recent month 14,000 sets of animals were made. 8,000 direct labour hours were worked
and paid at $9.25 per hour. Actual fixed overheads were $23,000 for the month.
Task 1
Complete the following extract from the profit reconciliation for the most recent month:
Variance $ Favourable/Adverse
Fixed overhead expenditure
Fixed overhead efficiency
Fixed overhead capacity
(6 marks)

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QUESTIONS

Task 2
Match the possible explanations of the cause of variances to the variance.
Volume variance Labour productivity was lower than expected
Efficiency variance Labour productivity was higher than expected
Expenditure variance Over-absorption of fixed overheads
Capacity variance Under-absorption of fixed overheads
Fixed overhead expenditure was higher than
expected
Fixed overhead expenditure was lower than expected
Labour worked more hours than expected
Labour worked fewer hours than expected
(4 marks)

(Total = 10 marks)

24.6 CC Co makes garden chairs, which have a standard direct material cost as follows:
6 kg of Material W at $15 per kg = $90 per chair
During October 20X5, 2,500 chairs were manufactured using 12,000 kg of Material W which cost
$175,000.
Task 1
Calculate the following variances.

The direct material total variance $ Adverse/Favourable

The direct material price variance $ Adverse/Favourable
The direct material usage variance $ Adverse/Favourable

(6 marks)

Task 2
A company uses standard marginal costing. Its budgeted contribution for the last month was $30,000.
The actual contribution for the month was $20,000, and the following variances have been calculated:
 Sales volume contribution variance $5,000 adverse
 Sales price variance $10,000 favourable
 Fixed overhead expenditure variance $3,000 favourable
Use the drop down box to select the total variable cost variance.

Select... 
$18,000 adverse
$18,000 favourable
$15,000 adverse
$15,000 favourable

(2 marks)

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Task 3
A company has calculated an adverse direct material variance by subtracting its flexed budgeted direct
material cost from its actual direct material cost for the period.
Which TWO of the following could have caused the variance?

An increase in direct material prices

An increase in raw material usage per unit
Units produced being greater than budgeted
Units sold being greater than budgeted
(2 marks)

(Total = 10 marks)

24.7 Dream Co operates a standard costing system. It expects to produce 3,000 units of product X using
12,000 hours of labour. The standard cost of labour is $12.50 per hour.
In January the company actually made 2,195 units. The actual labour cost was $110,750 for the
9,200 hours worked.
Task 1
Calculate the following variances for Dream Co for January.

Total labour variance $ Adverse/Favourable

Labour rate variance $ Adverse/Favourable
Labour efficiency variance $ Adverse/Favourable

(6 marks)

Task 2
Which of the following could give rise to an adverse labour efficiency variance?
 The rate actually paid to workers was higher than the standard
 Actual production took longer than expected
 The rate actually paid to workers was lower than the standard
 Actual production was quicker than expected (2 marks)

Task 3
Dream Co’s operating costs are 70% variable and 30% fixed.
Which of the following variances’ values would change if the company switched from standard marginal
costing to standard absorption costing?
 Direct material efficiency variance
 Variable overhead efficiency variance
 Sales volume variance
 Fixed overhead expenditure variance (2 marks)

(Total = 10 marks)

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QUESTIONS

24.8 Swindle Co makes widgets. Two types of labour are involved in the production of a widget, skilled and
unskilled. Skilled labour is paid $15 per hour and unskilled $3 per hour. Twice as many unskilled labour
hours as skilled labour hours are needed to produce a widget, six unskilled labour hours being needed.
A widget is made up of two different direct materials. Five kg of Material X and two metres of Material Z
are needed. Material X costs $2 per kg and Material Z $5 per metre.
Variable production overheads are incurred at Swindle at the rate of $3.00 per direct skilled labour hour.
The basis of fixed cost absorption is direct skilled labour hours. For the coming year, budgeted fixed
production overheads are $100,000 and budgeted production of widgets is 10,000 units.
Administration, selling and distribution overheads are added to products at the rate of $20 per widget,
and a mark-up of 15% is made on each.
Task 1
Complete the standard cost card for a widget:
Standard cost card for a widget $
Direct materials - X
Direct materials - Z
Direct labour - skilled
Direct labour - unskilled
Variable production overhead
Fixed production overhead
Admin selling and distribution overhead
Standard cost of sale
Standard profit
Standard sales price
(8 marks)

Task 2
How is a selling price variance calculated?
 The difference between actual units sold and the budgeted quantity, valued at the standard
selling price
 The difference between the actual units sold and the budgeted quantity, valued at the standard
profit per unit
 The difference between budgeted and actual sales revenue
 The difference between what the sales revenue should have been for the quantity sold, and what
it was
(2 marks)

(Total = 10 marks)

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24.9 The standard direct labour cost of product Fab is as follows:

3 hours of Grade B labour at $5 per hour = $15 per unit
During the last period, 3,000 units of product Fab were made, and the direct labour cost of the Grade B
labour was $43,700 for 10,000 hours of work.
Task 1
Calculate the direct labour total variance, and analyse it into the direct labour rate variance and direct
labour efficiency variance.

Direct labour total variance $ Adverse/Favourable

Direct labour rate variance $ Adverse/Favourable
Direct labour efficiency variance $ Adverse/Favourable

(6 marks)

Task 2
Complete the following sentence using the words listed. Not all of the words listed will be needed and
some may be needed more than once.
The direct labour rate variance is the difference between the _______ cost and the ________ cost for the
_________ number of ________ paid for.
standard
actual
units
hours (2 marks)

Task 3
During the same period, 12,000 kgs of material Top was used to make the 3,000 units of product Fab,
at a cost of $96,000. The direct material total variance was $3,000 (A).
What is the standard direct material cost per unit of Fab? (give your answer to the nearest whole $)

Standard direct material cost per unit $

(2 marks)

(Total = 10 marks)

24.10 Diamond uses standard costing. The following data relates to labour Grade C.
Actual hours worked 12,600 hours
Standard allowance for actual production 10,800 hours
Standard rate per hour $7.50
Rate variance (favourable) $675
Task 1
What was the actual rate of pay per hour?
 $7.75
 $7.60
 $7.44
 $7.45 (2 marks)

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QUESTIONS

Task 2
The standard material content of one unit of Ruby is 5 kg of material Sparkle, which should cost $20
per kg. In December 20X6, 6,000 units of Ruby were produced and there was an adverse material
usage variance of $10,000.
Calculate the quantity of Sparkle used in December 20X6 (to the nearest whole kg)

Quantity of Sparkle used in December 20X6 kg

(2 marks)

Task 3
Crystal Co uses a standard absorption costing system. The following figures are available for the last
accounting period, for which standard profit was $135,000.
$
Sales volume variance 15,000 adverse
Sales price variance 10,500 favourable
Total variable cost variance 7,500 adverse
Fixed cost expenditure variance 5,500 favourable
Fixed cost volume variance 4,000 adverse
What was the actual profit for the period?

$ (4 marks)

Task 4
Emerald uses standard marginal costing, instead of standard absorption costing.
Which TWO of the following are differences in the way that Emerald will calculate its variances, when
compared with Crystal?

The sales volume variance will be valued at standard contribution margin.

The sales volume variance will be valued at standard profit margin.
There will be no fixed cost volume variance.
There will be no fixed cost expenditure variance. (2 marks)

(Total = 10 marks)

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