7/31/2019 Variance Analysis 5.11

1/2

PART D STANDARD COSTING AND VARIANCE ANALYSIS

298

Question Various variances

A company produces and sells one product only, the Thing, the standard cost for one unit being as

follows.

$

Direct material A 10 kilograms at $20 per kg 200

Direct material B 5 litres at $6 per litre 30

Direct wages 5 hours at $6 per hour 30

Fixed production overhead 50

Total standard cost 310

The fixed overhead included in the standard cost is based on an expected monthly output of 900 units.

Fixed production overhead is absorbed on the basis of direct labour hours.

During April the actual results were as follows.

Production 800 units

Material A 7,800 kg used, costing $159,900

Material B 4,300 litres used, costing $23,650Direct wages 4,200 hours worked for $24,150

Fixed production overhead $47,000

Required

(a) Calculate price and usage variances for each material.

(b) Calculate labour rate and efficiency variances.

(c) Calculate fixed production overhead expenditure and volume variances and then subdivide the

volume variance.

Answer(a) Price variance A

$

7,800 kgs should have cost ( $20) 156,000

but did cost 159,900

Price variance 3,900(A)

Usage variance A

800 units should have used ( 10 kgs) 8,000 kgs

but did use 7,800 kgs

Usage variance in kgs 200 kgs (F) standard cost per kilogram $20

Usage variance in $ $4,000 (F)

Price variance B

$

4,300 litres should have cost ( $6) 25,800

but did cost 23,650

Price variance 2,150 (F)

TE TWAWEZA 2012

7/31/2019 Variance Analysis 5.11

2/2

11: VARIANCE ANALYSIS

299

Usage variance B

$

800 units should have used ( 5 l) 4,000 l

but did use 4,300lUsage variance in litres 300 (A)

standard cost per litre $6

Usage variance in $ $1,800 (A)

(b) Labour rate variance

$

4,200 hours should have cost ( $6) 25,200

but did cost 24,150

Rate variance 1,050 (F)

Labour efficiency variance

800 units should have taken ( 5 hrs) 4,000 hrs

but did take 4,200 hrs

Efficiency variance in hours 200 hrs (A) standard rate per hour $6

Efficiency variance in $ $1,200 (A)

(c) Fixed overhead expenditure variance$

Budgeted expenditure ($50 900) 45,000

Actual expenditure 47,000Expenditure variance 2,000 (A)

Fixed overhead volume variance

$

Budgeted production at standard rate (900

$50) 45,000Actual production at standard rate (800 $50) 40,000Volume variance 5,000 (A)

Fixed overhead volume efficiency variance

$

800 units should have taken ( 5 hrs) 4,000 hrsbut did take 4,200 hrs

Volume efficiency variance in hours 200 hrs standard absorption rate per hour $10Volume efficiency variance $2,000 (A)

Fixed overhead volume capacity variance

Budgeted hours 4,500 hrsActual hours 4,200 hrsVolume capacity variance in hours 300 hrs (A)

standard absorption rate per hour ($50 5) $10$3,000 (A)

You have to be very happy with basic variance calculations so it is essential to do more practice if you

struggled with this question.

Exam focuspoint

TE TWAWEZA 2012