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Homework answers / question archive / Question 1 A company manufactures a single product for which the standard variable cost is: K per unit Direct material: 81 kg x K7 per kg Direct labour: 97 hours x K8 per hour Variable overhead: 97 hours x K3 per hour 567 776 291 1,634 Budget Sales and production volume Standard selling price Standard variable cost 81,600 units K59 per unit K24 per unit During January, 530 units were produced and the costs incurred were as follows: Direct material: 42,845 kg purchased and used; cost K308,484 Direct labour: ,380 hours worked; cost K400,764 Variable overhead: cost K156,709 Actual results Sales and production volume Actual selling price Actual variable cost 82,400 units K57 per unit K23 per unit Required: (a) Calculate the following variances (ii) Direct material price variance Direct material usage variance Direct labour total variance Variable overhead total variance Variable overhead expenditure variance (iv) (b) Discuss FOUR of the uses of Standard Costing (c) Discuss three (3) advantages and three (3) disadvantages of Standard Costing
Question 1 A company manufactures a single product for which the standard variable cost is: K per unit Direct material: 81 kg x K7 per kg Direct labour: 97 hours x K8 per hour Variable overhead: 97 hours x K3 per hour 567 776 291 1,634 Budget Sales and production volume Standard selling price Standard variable cost 81,600 units K59 per unit K24 per unit During January, 530 units were produced and the costs incurred were as follows: Direct material: 42,845 kg purchased and used; cost K308,484 Direct labour: ,380 hours worked; cost K400,764 Variable overhead: cost K156,709 Actual results Sales and production volume Actual selling price Actual variable cost 82,400 units K57 per unit K23 per unit Required: (a) Calculate the following variances (ii) Direct material price variance Direct material usage variance Direct labour total variance Variable overhead total variance Variable overhead expenditure variance (iv) (b) Discuss FOUR of the uses of Standard Costing (c) Discuss three (3) advantages and three (3) disadvantages of Standard Costing
(a)
(i) Direct Material Price Variance = (Actual Quantity Used X Standard Price) - (Actual Quantity Used X Actual Price)
= (42,845 kg X K7 per kg) - K 3,08,484
= K 2,99,915 - K 3,08,484
= K 8569 Unfavorable
(ii) Direct Material Usage Variance = (Standard Price X Standard Quantity) - (Standard Price X Actual Quantity)
= (K7 per kg X 42,930 kg) - (K7 per kg X 42,845 kg)
= K 595 Favorable
Standard Quantity = Actual Output X Standard Quantity per unit
= 530 units X 81 kg per unit
= 42,930 Kg.
(iii) Direct Labour Total Variance = (Standard Hours X Standard Rate) - (Actual Hours X Actual Rate)
= (51,410 hours X K8 per hour) - K 4,00,764
= K 10,516 Favorable
Standard Hours = Actual Output X Standard Hours per unit
= 530 Units X 97 hours
= 51,410 Hours.
(iv) Variable Overhead Total Variance = (Standard Hours X Standard Rate) - (Actual Hours X Actual Rate)
= (51,410 hours X K3 per hour) - K 1,56,709
= K 2479 Unfavorable
(v) Variable Overhead Expenditure Variance = (Actual Hours X Standard Rate) - (Actual Hours X Actual Rate)
= (51,380 Hours X K3 per hour) - K 1,56,709
= K 2569 Unfavorable
(b) Uses of Standard Costing,
Standard Costing is used for future cost estimation. Standard Costs are determined after considering all the possibilities that may arise in the future.
Standard Costing is used for improving cost or cost control, simplify stock valuation and improving costing and pricing of products.
Standard costing is used for Performance check.Standard cost acts as targets to the cost centres which should not be transcended.
The standard costs are used to prepare budgets, and evaluate the performance of the executive staff on the basis of these budgets.
(c) Advantages of Standard Costing
Disdvantages of Standard Costing
