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Assignment# 3
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Cost and Management accounting
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Submitted To: sir Hassan Jabbar
Submitted From: Tajala Maqsood(15221002)
Question No 1:
Determine the direct cost and overhead variances? What might be causing each of the
variance to occur?
Answer:
Frame Assembly:
Direct Material variance:
1) Steel Tubing = (Standard price * Standard quantity) (Actual price *Actual quantity)
= (30 * 118,800) (31.50 * 113,400)
= 3,564,000 3,572,100
= 8100 A
a)
Price variance = (Standard price Actual price) Actual quantity
= (30 31.50) 113,400
= 170,100 A
b) Usage variance = (Standard quantity - Actual quantity) Standard price
= (118,800 113,400) 30
= 162,000 F
Working Note:
Standard quantity = (Actual production * Standard usage)
= 10,800 * (110,000 / 10,000)
=10,800* 11
=118,800
2) Paint = (Standard price * Standard quantity) (Actual price * Actual quantity)
= (20 * 1350) (20.5 * 1375)
= 27,000 28,187
= 1,187A
a) Price variance = (Standard price Actual price) Actual quantity
= (20- 20.50) 1375
= 687A
b) Usage variance = (Standard quantity - Actual quantity) Standard price
= (1,350 1,375) 20
2
= 500A
Working Note:
Standard Quantity = (Actual price * Standard usage)
= 10,800 * (1250/ 10,000)
=10,800 * 0.125
= 1350
3) Labor Variance:
Labor Variance: (Standard rate *Standard hours) (Actual rate *Actual hours)
= (15* 108,000) (15.25 * 100,200)
= 620,000 1,528,050
= 91,950 F
a) Rate Variance= (Standard rate - Actual rate) Actual hours
= (15 15.25) * 100,200
= 250,50A
b) Efficiency variance = (Standard hours Actual hours) Actual rate
= (108,000 100,200) 15
= 7,800 * 15
= 117,000 F
Working Note:
Standard Hours = 10,800 * 100,000/ 10,000
= 10,800 * 10
= 108,000
Total Frame Assembly
Steel Tubing
8,100 A
Paint
1,187 A
Labor
91,950F
Total
82,663 F
3
Wheel Assembly:
Direct Material variance:
1) Parts = (Standard price Standard quantity) (Actual price Actual quantity)
= (120 * 10,800) (122 * 10,800)
= 1,296,000 1, 3176,000
=21,600A
a) Price variance = (Standard price Actual price) Actual quantity
= (120 122) 10,800
= 21,600A
b) Usage Variance = (Standard quantity - Actual quantity) Standard price
= (10,800 -10,800) 120
=0
Working note:
Standard quantity = 10,800 * 10,000/ 10,000
= 10,800 * 1
= 10,800
2) Labor variance:
Labor Variance = (Standard rate *Standard hours) (Actual rate *Actual hours)
= (13*5,400) (13.50* 5,500)
= 70,200 74,250
= 4,050A
a) Rate Variance = (Standard rate - Actual rate) Actual hours
= (13 13.50) * 5,500
= 2,750A
b) Efficiency variance = (Standard hours Actual hours) Actual rate
= (5,400 5,500) 13
4
= 1300 A
Working Note:
Standard hours = 10,800 * 50,000/ 10,000
= 10,800 * 0.5
= 5400
Total of wheel Assembly
Parts
21,600 A
Rework parts
25000 A
Labor
4,050 A
Total
50,650 A
Final Assembly:
Direct Material Variance:
1) Parts = (Standard price * Standard quantity) (Actual price *Actual quantity)
= (350 * 10,800) (367 * 10,800)
= 3,780,000 3,963,600
=183,600A
a) Price Variance = (Standard price Actual price) Actual quantity
= (350 367) 10,800
= 183,600 A
b) Usage = (Standard quantity - Actual quantity) Standard price
= (10800 10800) 350
=0
2) Labor variance:
Labor Variance= (Standard rate *Standard hours) (Actual rate *Actual hours)
= (14 * 8,100) (14.50 * 8000)
=113,400 116,000
= 2600 A
a) Rate Variance = (Standard rate - Actual rate) Actual hours
= (14 14.50) 8000
= 4000 A
b) Efficiency variance = (Standard hours Actual hours) Actual rate
= (8100 8000) 114
= 1400 F
Total Final Assembly
Parts
Rework Parts
183600 A
45000 A
Labor
2600 A
Total
231,200 A
Overhead Variance
Total Overhead Variance = Budgeted Actual
=1,240,000 1,300,000
=60,000 A
Working Note:
Budgeted Overhead = 250,000 + 100,000+ 100,000+ 540,000+ 250,000
=1,240,000
Variable Overhead = 750,000 * 2/3 = 500,000
= 500,000 /10,000 = 50
6
= 50 * 10,800 = 540,000
Budgeted Fixed Overhead = 750,000 540,000 = 250,000
Actual variable Overhead = 850,000 250,000
= 600,000
After adjustment of Factory overhead applied:
Total = Actual FOH FOH applied
= 1300,000 1,296,000
= 4000 A
a) Spending Variance= Budgeted Actual
b) Volume variance = Applied budgeted
= 1,240,000 1300,000
= 1,296,000 1,240,000
= 56000 F
= 60,000 A
FOH applied = Actual production * Budgeted FOH rate
= 10,800 * 120
= 1,296,000
Budgeted FOH rate = Budgeted Cost
Budgeted Units
=
1200,000
10,000
= 120
Interpretation:
As in Frame Assembly price variance is adverse which means more expensive was purchased
than budgeted. But the usage variance is favorable which means less material was used than
budgeted. Overall Frame assembly gives a favorable variance. In Wheel assembly price variance
is adverse, but there is no usage variance which means budgeted and actual usage of material is
same. And material was properly used. Labor variance is also adverse means labor was
expensive as well as takes more time to complete work than budgeted.
In final assembly price variance is adverse but the usage variance is zero. Overall it gives an
adverse variance more than other two departments. In short most of the variances are due to
price. And for wheel and final assembly rework cost also gives adverse variance as it was not
budgeted before.
Question No 2:
Should Bob Moyer be concerned about Mile High Cycles performance? Where should he
be prepared to direct his attention? What additional information should he try to obtain?
Answer: Yes, Bob Mayer should be concerned and analyze the Mile High Cycles performance.
He should pay more attention on the pricing of the material. It is adverse in all departments. He
should also consider the rework parts cost. It is creating the adverse variance. Finally he should
obtain additional information about the material prices. He should try to find out why it is higher
than budgeted in all departments, even if there was no usage variance. He should also take
information why there is need of rework parts, where the inefficient work is being performed
Question No 3:
Are there any purposes for which a total, per unit variance would be more useful than a
series of functional variances? If so, for what?
Answer: As the functional variance gives information about performance of divisions, which
division is doing well and which is not. It would be helpful for the management to take decisions
about the divisions. We can further split the functional variance into per unit variances. Unit
variance will help us to understand that which unit is creating problem and gives more variance.
Means unit variance is helpful to know in depth about which unit is actually creating variance. It
would be good for making better decisions.
