QUESTIONS

a) Calculate the following variances for product SLIM and SMART :

i. Material Price Variance

ii. Material Usage Variance

iii. Total Material Variance

iv. Labour Rate Variance

v. Labour Efficiency Variance

vi. Total Labour Variance

SLIM

Material Price Variance

MPV = ( AP - SP ) x AQ

= ( RM 4.90 – RM 5.00 ) X 8,200 kg

= RM 820 (F)

Material Usage Variance

MUV = ( AQ - SQ ) X SP

= ( 7,380 kg – 7,800 kg) X RM 5.00

= RM 2,100 (F)

Total Material Variance

MCV = MPV + MUV

= RM 820 ( F ) + RM 2,100 ( F )

= RM 2,920 (F)

SLIM

Labour Rate Variance

LRV = ( AR – SR ) X AH

= ( RM 7.20 – RM7.00 ) X 12,300 hours

= RM 2,460 (UF)

Labour Efficiency Variance

LEV = ( AH – SH ) x SR

= ( 12,300 hours - 11,700 hours) X RM 7

= RM 4,200 (UF)

Total Labour Variance

LCV = LRV + LEV

= RM 2,460 (UF) + RM 4,200 (UF)

= RM 6,660 (UF)

SMART

• Material Price Variance

MPV = ( AP - SP ) X AQ

= ( RM 6.50 – RM 6.00 ) X 10,000 kg

= RM 5,000 (UF)

• Material Usage Variance

MUV = ( AQ - SQ ) X SP

= ( 9,000 kg – 16,650 kg ) X RM 6.00

= RM 45,900 (F)

• Total Material Variance

MCV = MPV + MUV

= RM 5,000 (UF) + RM 45,900 (F)

= RM 40,900 (F)

SMART

• Labour Rate Variance

LRV = ( AR – SR ) X AH

= ( RM 8.00 – RM7.50 ) X 13,500 hours

= RM 6,750 (UF)

• Labour Efficiency Variance

LEV = ( AH – SH ) X SR

= ( 13,500 hours - 19,425 hours ) X RM 7.50

= RM 44,437.50 (F)

• Total Labour Variance

LCV = LRV + LEV

= RM 6,750 (UF) + RM 44,437.50 (F)

= RM 37,687.50 (F)

QUESTIONS

b) State TWO (2) possible reasons for each of the

Favourable (F) or Unfavourable (UF) variances above.

SLIM

Material Price Variance (MPV) : Favourable (F)

1. Decrease in price

2. Inefficient buying

Material Usage Variance (MUV) : Favourable (F)

1. Method of production

2. Handling in material

Total Material Variance (MCV) : Favourable (F)

1. Decrease in price

2. Method of production

SLIM

Labour Rate Variance (LRV) : Unfavourable (UF)

1. Paying workers at a lower rate (in standard rate)

2. Working overtime

Labour Efficiency Variance (LEV) : Unfavourable (UF)

1. Standard sets too loose

2. Inefficient equipments

Total Labour Variance (LCV) : Unfavourable (UF)

1. Working overtime

2. Standard sets too loose

SMART

Material Price Variance (MPV) : Unfavourable (UF)

1) Standard price set was too low

2) Increase in price

Material Usage Variance (MUV) : Favourable (F)

1) Condition of machinery

2) Nature of material

Total Material Variance (MCV) : Favourable (F)

1) Condition of machinery

2) Nature of material

SMART

Labour Rate Variance (LRV) : Unfavourable (UF)

1. Time taken for the work

2. Change in rate

Labour Efficiency Variance (LEV) : Favourable (F)

1. Standard sets too tight

2. Lost time due to machine brokedown

Total Labour Variance (LCV) : Favourable (F)

1. Standard sets too tight

2. Lost time due to machine brokedown

Thank you