- 10 Marks
MA – Nov 2021 – L2 – Q3a – Standard Costing and Variance Analysis
Calculate and interpret the efficiency, capacity, and production volume ratios based on provided data.
Question
a) GG Ltd is into fuel processing and transportation. GG Ltd produces three types of fuel, namely: Petrol, Diesel, and Pre-mix fuel.
The standard time for the production of the fuel types are:
- Petrol: 50 minutes per metric tonne
- Diesel: 30 minutes per metric tonne
- Pre-mix fuel: 45 minutes per metric tonne.
The production budget for August is as follows:
- Petrol: 42,000 metric tonnes
- Diesel: 60,000 metric tonnes
- Pre-mix fuel: 45,000 metric tonnes
The actual data for the month were as follows:
- Labour: 100,000 hours
- Production:
- Petrol: 45,000 metric tonnes
- Diesel: 50,000 metric tonnes
- Pre-mix fuel: 40,000 metric tonnes.
Required:
Compute and interpret the following:
i) The efficiency ratio. (3 marks)
ii) The capacity ratio. (3 marks)
iii) The production volume or activity ratio. (4 marks)
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