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20.7 A unit of product L requires 9 active labour hours for completion. The performance standard for productL allows for ten per cent of total labour time to be idle, due to machine downtime. The standard wagerate is $9 per hour. What is the standard labour cost per unit of product L?

ABCD

$72.90$81.00$89.10$90.00 (2 marks)

(Total = 14 marks)

Ell Basic variance analysis . 46 mins21.1 A company manufactures a single product L, for which the standard material cost is as follows.

$ per unitMaterial 14 kg x $3 42During July, 800 units of L were manufactured, 12,000 kg of material were purchased for $33,600, ofwhich 11,500 kg were issued to production.SM Co values all inventory at standard cost.

The material price and usage variances for July were:

ABCD

Price$2,300 (F)$2,300 (F)$2,400 (F)$2,400 (F) (2 marks)

Usage$900 (A)$300 (A)$900 (A)$840 (A)

--,-----,-------------The following information relates to questions 21.2 and 21.3A company expected to produce 200 units of its product, the Bone, in 20X3. In fact 260 units were produced.The standard labour cost per unit was $70 (10 hours at a rate of $7 per hour). The actual labour cost was$18,600 and the labour force worked 2,200 hours although they were paid for 2,300 hours.

21.2 What is the direct labour rate variance for the company in 20X3?

AB

$400 (Al$2,500 (F) (2 marks)

$2,500 (A)$3,200 (A)

CD

21.3 What is the direct labour efficiency variance for the company in 20X3?

ABCD

$400 (A)$2,100 (F)$2,800 (A)$2,800 (F) (2 marks)

21.4 Extracts from a company's records from last period are as follows.

Budget1,925 units

$11,5505,775

Actual2,070 units

$14,9048,280

ProductionVariable production overhead costLabour hours worked

The variable production overhead variances for last period are:

ABCD

Expenditure$1,656 (F)$1,656 (F)$1,656 (F)$3,354 (A) (2 marks)

Efficiency$2,070 (A)$3,726 (A)$4,140 (1\)$4,140 (A)

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21.5 A company has budgeted to make and sell 4,200. units of produ6t>X'dU~tngAt{e!"period.The standard fixed overhead cost per unit is $4.During the period covered by the budget, the actual results were as follows.

Production and salesFixedoverhead incurred

The fixed overhead variances for the period were .

Fixed overhead

5,000 units$17,500

Fixed overheadvolume vetience

$3,200 (F)$3,200 (A)$3,200 (F)$~,200 (A):

(2 marks)

ABcD

expenditure variance$700 (F)$700 (F)$700 (A)$700 (A) .

21.6 A company manufactures a single product, and relevant data for December is as follows.

Production unitsLabourhoursFixed production overhead

Budget/standard1,8009,000

$36,000

Actual1,9009,400,

$39,480

The fixed production overhead capacity and efficiency variances for December are:

Capacity EfficiencyA $1,600 (F) $400 (F)B $1,600 (A) $400 (A)C $1,600 (A) $400 (F)D $1,600 (F) $400 (A) (2 marks}

21.7 Which of the following would help to explain a favourable direct labour efficiency variance?1 Employeeswere of a lower skill level than specified in the standard2 Better quality material was easier to process .3 Suggestionsfor improved working methods were implemented during the periodA 1,2and3B 1 and 2 onlyC 2 and 3 onlyD 1 and 3 only (2 marks)

21.8 Which of the following statements is correct?A An adversedirect material cost variance will always be a combination of an adversematerial

pncevarlance and an adverse material usagevarianceB An adverse direct material cost variance will always be a combination of an adverse material

price variance and a favourable material usagevarianceC An adverse direct material cost variance can be a combination of a favourable material price

variance and a favourable material usagevarianceo An adverse direct material cost variance can be a combination of a favourable material price

variance and an adverse material usagevariance (2 marks)

The following information relates to Questions 21.9 and 21.10A company has a budgeted material cost of $125,000 for the production of 25,000 units per month. Each unitis budgeted to use 2 kg of material. The standard cost of material is $2.50 per kg.

Actual materials In the month cost $136,000 for 27,000 units and 53,000 kg were purchased and used.

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21.9 What was the adverse material price variance?

ABCD

$1,000$3,500$7,500$11,000

21.10 What was the favourable material usage variance?

(2 marks)

ABCD

$2,500$4,000$7,500$10,000 (2 marks)

The following information relates to questions 21.11 and 21.12A company operating a standard costing system has the following direct labour standards per unit for one of itsproducts:

4 hours at $12.50 per hour

Last month when 2,195 units of the product were manufactured, the actual direct labour cost for the 9,200hours worked was $110,750. .

21.11 What was the direct labour rate variance for last month?

A $4,250 favourableB $4,250 adverseC $5,250 favourableD $5,250 adverse (2 marks)

21.12 What was the direct labour efficiency variance for last month?

A $4,250 favourableB $4,250 adverseC $5,250 favourableD $5,250 adverse (2 marks)

21.13 The follow; ng information relates to labour costs for the past month:Budget Labour rate

Production timeTime per unitProduction units

Actual Wages paidProductionTotal hours worked

$10 per hour15,000 hours

3 hours5,000 units

$176,0005,500 units

14,000 hours

(2 marks)

82

There was no idle time

What were the labour rate and efficiency variances?

ABCD

Rate variance$26,000 adverse$26,000 adverse$36,000 adverse$36,000 adverse

Efficiency variance$25,000 favourable$10,000 favourable

$2,500 favourable$25,000 favourable

21.14 Amanufacturing company operates a standard absorption costing sys~el'rt, :I!astmonth 25,.000 .production hours were bjJdgeted and the budgeted fixed production overhead costwas $125,000. Lastmonth th~ aCtual hours worked were :24,()d·0and the standard hours for actual production were27,000.

What Wasthe trxed ·production overhead capaCity varlance for last rnonthtA $5,000 AdverseB $5,000 FavourableC $10,000 Adverse.D $10,000 Favourable (2 marks)

The: followilig information relates to questions 21.15 to 21.17Number of units produced

.. • Oir~, o:ra.t~~ials,..:.

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21.19 Which of the following statements are true?

1 The fixed overhead volume capacity variance represents part of the over/under absorption ofoverheads . .. .

2 A company works fewer hours than budgeted. This will result in an adverse fixed overheadvolume capacity variance

A8Co

1 is true and 2 is falseBoth are trueBoth are false1 is false and 2 is true (2 marks)

(Total = 38 marks) .

Em Further variance analysis 53 mins22.1 A company currently uses a standard absorptiot'i costing system. The fixed overhead variances extracted

from the operating statement for November are: .$

Fixed productiori overhead expenditure varianceFixed production overhead capacity varianceFixed production overhead efficiency variance

5,800 adverse .4,200 favourable1,400 adverse

PQ Limited is considering using standard marginal costing as the basis for variance reporting in future.What variance for fixed production overhead would be shown in a marginal costing operating statementfor November?

ABCD

No variance would be shown for fixed production overheadExpenditure variance: $5,800 adverseVolume variance: $2,800 favourableTotal variance: $3,000 adverse (2 marks)

22.2 Which of the following situations is most likely to result in a favourable selling price variance?

A The sales director decided to change from the planned policy of market skimming pricing to oneof market penetration pricing.

8 Fewer customers than expected took advantage of the early payment discounts offered.

C Competitors charged lower prices than expected, therefore selling prices had to be reduced inorder to compete effectively.

D Demand for the product was higher than expected and prices could be raised without adverseeffects on sales volumes. (2 marks)

The following information relates to questions 22.3 to 22.6A company manufactures a single product. An extract from a variance control report together with relevantstandard cost data is shown below.Standard selling price per unitStandard direct material cost ·(5kg x $2 per kg)Budgeted total material cost of salesBudgeted profit marginActual results for FebruarySales revenueTotal direct material costDirect material price varianceDirect material usage variance

There was no change in inventory levels during the month.

$70$10 per unit

$2,300 per month$6,900 per month

$15,200$2,400

$800 adverse$400 favourable

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