MR KAYBEE
STANDARD COSTING VARIANCES
TEST ONE
QUESTION 1
You have been asked to examine the performance of a company for May. The company
supplies kitchen units to the building industry. The standard cost of one kitchen unit for
May was as follows:
$
Direct materials 5 kgs at $4.00 per kg 20.00
Direct labour 4 hours at $6.00 per hour 24.00
Overheads $4.00 per labour hour 16.00
The standard selling price of one unit was $100 and budgeted production and sales were
1 200 units. All overheads are fixed in nature.
The actual results were as follows:
1 300 units were made and sold for a total of $130 000.
Direct materials used was 6 600 kgs at a total cost of $25 080.
Direct labour was 5 330 hours at cost of $32 513.
Actual fixed overheads were $22 000.
Required:
a) Calculate the following variances:
i. Material price;
ii. Material usage;
iii. Labour rate;
iv. Labour efficiency;
v. Sales price;
vi. Sales volume. [12]
b) Prepare absorption and marginal costing income statement reconciling budgeted and
actual profit [13]
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MR KAYBEE
QUESTION 2
Kaybee Co. uses a standard cost system for its single product and the following
information is given:
Standard costs per unit:
$
Raw materials (1.5 grams at $16 per gram) 24.00
Direct labour (0.75 hours a $8.00 per hour) 6.00
Actual experience for current year:
Units produced 22 400 unis
Purchases of raw materials (21 000 grams at $17 each) $357 000
Raw materials used 33 400 grams
Direct labour (16 750 hours at $8 per hour) $134 000
Required:
a) Compute the following variances for raw materials and direct labour, assuming
that the price variance for materials is recognized at point of purchase:
i. Direct materials price variance;
ii. Direct materials quantity variance;
iii. Direct labour rate variance;
iv. Direct labour efficiency variance; [8]
b) As manager, why is variance analysis important? [5]
c) From the information available, write a report to the chairman of the company
explaining the variances calculated above. [12]
THANK YOU!!!
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