- 6 Marks
Question
Material and Labour Variances
The data below relates to Agbamame Enterprise for its flagship product, “Herb of Life”:
Standard Cost Card – Per Unit of Herb of Life
| Description | Cost (GH¢) |
|---|---|
| Direct materials | 5 kg at GH¢4 per kg = GH¢20 |
| Direct labour | 4 hours at GH¢15 per DLH = GH¢60 |
| Variable overhead | 4 hours at GH¢20 per DLH = GH¢80 |
| Fixed overhead | GH¢50 per unit |
Budgeted production: 600 units
Actual sales and production: 550 units
Actual cost of:
| Actual Costs | Cost (GH¢) |
|---|---|
| Labour (1650 hours) | 16,500 |
| Materials (1650 kg) | 5,775 |
| Fixed overhead | 15,000 |
| Variable overhead | 13,275 |
Data shows that 5% of labour hours paid for was idle, and 10% of materials bought was in stock at the end of the period.
Required:
i) Calculate the material variances.
ii) Calculate the labour variances.
Answer
Material Variances
| Variance Type | Calculation | Amount (GH¢) |
|---|---|---|
| Material Price Variance (MPV) | AQ × (SP – AP) | 825 (Favorable) |
| Material Quantity Variance (MQV) | SP × (SQ – AQ) | 4,400 (Adverse) |
ii) Labour Variances
| Variance Type | Calculation | Amount (GH¢) |
|---|---|---|
| Labour Rate Variance (LRV) | AH × (SR – AR) | 8,250 (Favorable) |
| Labour Efficiency Variance (LEV) | SR × (SH – AH) | 9,487.5 (Favorable) |
- Tags: Labour Variance, Material Variance, Standard Costing, Variance Analysis
- Level: Level 1
- Topic: Standard Costing and Variance Analysis
- Series: Nov 2024
- Uploader: Salamat Hamid