- 15 Marks
MA – L2 – Q25 – Advanced variance analysis
Question
VRS Limited has the following data for a particular period:
Standard consumption quantities:
- Material X: 50,000 units × 6 kg = 300,000 kg
- Material Y: 50,000 units × 3 kg = 150,000 kg
Adverse quantity variance (quantity used in excess of standard usage):
- Material X: 5,000 kg
- Material Y: 5,000 kg
Actual quantity used:
- Material X: 300,000 kg + 5,000 kg = 305,000 kg
- Material Y: 150,000 kg + 5,000 kg = 155,000 kg
Inventory data:
- Closing inventory:
- Material X: 300,000 kg × 20/365 = 16,438 kg
- Material Y: 150,000 kg × 20/365 = 8,219 kg
- Opening inventory:
- Material X: 300,000 kg × 25/365 = 20,548 kg
- Material Y: 150,000 kg × 25/365 = 10,274 kg
Actual cost data:
- Material X: GH₵150,000 ÷ GH₵30 = 5,000 kg (used to calculate actual quantity used)
- Standard cost per kilo:
- Material X: GH₵50
- Material Y: GH₵30
Required:
(a) Calculate:
- Actual quantity purchased for Materials X and Y.
- Actual cost of purchase for Materials X and Y, including price variance and percentage saved on standard rate.
VRS Limited has the following data for a particular period:
Labour rate variance data:
- Actual hours: 168,000
- Standard rates:
- 3/7 of hours at GH₵150 per hour
- 4/7 of hours at GH₵100 per hour
- Rate variance: 10% and 5% (Adverse)
Required:
(b) Calculate the labour rate variance and any relevant overhead variances.
Answer
(a) Actual quantity purchased:
| Material X | Material Y | |
|---|---|---|
| Standard consumption quantities | 300,000 | 150,000 |
| Adverse quantity variance (quantity used in excess of standard usage) | 5,000 | 5,000 |
| Actual quantity used | 305,000 | 155,000 |
| Closing inventory | 16,438 | 8,219 |
| Opening inventory | (20,548) | (10,274) |
| Actual purchase quantity (kg) | 295,890 | 152,945 |
Actual cost of purchase:
| Material X | Material Y | |
|---|---|---|
| Standard cost per kilo (GH₵) | GH₵50 | GH₵30 |
| Actual quantity purchased at standard rate (GH₵) | 14,794,500 | 4,588,350 |
| Price variance (Price paid above/(below) the standard rate) (GH₵) | 95,000 | (275,301) |
| Percentage saved on standard rate | (4,588,350 × 0.06) | |
| Actual cost of purchase (GH₵) | 14,889,500 | 4,313,049 |
(b) Labour and overhead variances:
Labour rate variance:
| GH₵ | |
|---|---|
| Actual hours at standard rate | |
| 168,000 × 3/7 × GH₵150 | 10,800,000 |
| 168,000 × 4/7 × GH₵100 | 9,600,000 |
| Total standard cost | 20,400,000 |
| Rate variance at 10% and 5% (Adverse) | |
| 10% of 10,800,000 | 1,080,000 |
| 5% of 9,600,000 | 480,000 |
| Labour rate variance | 1,560,000 (A) |
- Topic: Advanced Variance Analysis
- Uploader: Salamat Hamid