Absorption costing

MA – L2 – Q24 – Standard costing and variance analysis

Calculate sales price variance for three products using actual and standard selling prices for TRK Limited.

Question

TRK Limited operates an absorption costing system and sells three products, B, R, and K, which are substitutes for each other. The following standard selling price and cost data relate to these three products:

Product	Selling price per unit	Direct material per unit	Direct labour per unit
B	GH₵14.00	3.00 kg at GH₵1.80 per kg	0.5 hrs at GH₵6.50 per hour
R	GH₵15.00	1.25 kg at GH₵3.28 per kg	0.8 hrs at GH₵6.50 per hour
K	GH₵18.00	1.94 kg at GH₵2.50 per kg	0.7 hrs at GH₵6.50 per hour

Budgeted fixed production overhead for the last period was GH₵81,000. This was absorbed on a machine hour basis. The standard machine hours for each product and the budgeted levels of production and sales for each product for the last period are as follows:

Product	B	R	K
Standard machine hours per unit	0.3 hrs	0.6 hrs	0.8 hrs
Budgeted production and sales (units)	10,000	13,000	9,000

Actual volumes and selling prices for the three products in the last period were as follows:

Product	B	R	K
Actual selling price per unit	GH₵14.50	GH₵15.50	GH₵19.00
Actual production and sales (units)	9,500	13,500	8,500

Required:
(a) Calculate the sales price variance for overall sales for the last period. (b) Calculate the sales volume profit variance for overall sales for the last period.

Answer

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Tags: Absorption costing, Product pricing, Sales price variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

Question

Tarkwa Industries uses a standard absorption costing system. Standard data per unit of Product Z is as follows:

	GH₵ per unit	GH₵ per unit
Standard sales price		6.00
Direct labour cost	0.64
Direct material cost	3.00
Variable production overheads	0.16
		3.80
Contribution		2.20
Fixed overheads		0.20
Profit		2.00

The budgeted production and sales volume for Product Z was 12,000 units. Budget for 2,400 direct labour hours (12,000 units):

5 units to be produced per hour
Standard labour cost is GH₵3.20 per hour
Standard material cost is GH₵1.50 per kilogram and each unit requires 2 kilos
Budgeted fixed overheads GH₵2,400
Budgeted variable overhead cost per direct labour hour = GH₵0.80.

Actual results for the same period:

11,500 units were manufactured
2,320 direct labour hours were worked, and cost GH₵7,540
25,000 kilos of direct material were purchased (and used) at a cost of GH₵1.48 per kilogram.

Other information:

Inventory is valued at standard cost of production.
Actual variable overheads were GH₵1,750
Actual fixed overheads were GH₵2,462
10,000 units were sold for GH₵62,600.

Required:
Prepare operating statements for the period using:
(a) standard absorption costing.
To prepare the absorption costing operating statement, you should show the variable overhead expenditure and efficiency variances, and the fixed overhead expenditure and volume variances.

(b) standard marginal costing.

Answer

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Tags: Absorption costing, Budgeting, Labour variance, Material variance, Operating Statement, Overhead variance, Performance Analysis, Sales variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q21 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for Tarkwa Manufacturing Ltd. for Period 1 using standard absorption costing.

Question

Tarkwa Manufacturing Ltd., based in Kumasi, uses a standard absorption costing system in accounting for its production costs.
The standard cost of a unit of product is as follows:

	Standard quantity	Standard price/rate (GH₵)	Standard cost (GH₵)
Direct materials	5 kilos	6.00	30.00
Direct labour	20 hours	4.00	80.00
Variable production overhead	20 hours	0.20	4.00
Fixed production overhead	20 hours	5.00	100.00

The following data relates to Period 1:
Budgeted output: 25,000 units
Actual output – produced: 20,000 units
Units sold: 15,000 units
Materials put into production: 120,000 kilos
Materials purchased: 200,000 kilos
Direct labour hours paid: 500,000 hrs

Due to a power failure, 10,000 hours were lost.
Cost of materials used (120,000 kg): GH₵825,000
Rate per direct labour hour: GH₵5
Variable production overhead: GH₵70,000
Fixed production overhead: GH₵2,100,000

Required:
Calculate, for Period 1:

The material price variance
The material usage variance
The direct labour rate variance
The direct labour idle time variance
The direct labour efficiency variance
The variable overhead total cost variance
The fixed overhead expenditure variance
The fixed overhead volume variance
The total manufacturing cost variance

Answer

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Tags: Absorption costing, Idle time, Labour variance, Manufacturing costs, Material variance, Overhead variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q20 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for South-East Enterprises' product EAGLE using standard costing data for July 20X8.

Question

The following data were extracted from South-East Enterprises’ records for July 20X8 in respect of product EAGLE:

Standard cost/unit


Raw material (50kg @ GH₵5 per kg)	250
Labour (2 hours @ GH₵60 per hour)	120

Budget
Production: 2,000 Units
Fixed overheads: GH₵1,500,000
Variable overheads: GH₵1,800,000
Labour hours: 4,000
Standard hours of production: 4,000

Actual
Production: 2,400 Units
Direct material purchased: 110,000 kg @ GH₵605,000
Opening inventory direct material: 1,000 kg
Closing inventory direct material: 4,000 kg
Wages paid (4,900 hours): GH₵318,500
Fixed overhead: GH₵1,650,000
Variable overhead: GH₵2,280,000

Required:
Compute the following variances:
(a) Material price variance
(b) Material usage variance
(c) Labour rate variance
(d) Labour efficiency variance
(e) Variable overhead expenditure variance
(f) Variable overhead efficiency variance
(g) Fixed overhead efficiency variance

Answer

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Tags: Absorption costing, Labour variance, Manufacturing costs, Material variance, Overhead variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q19 – Standard Costing and Variance Analysis

Calculate the direct material price variance for Zaytuna Enterprises' Eco Blocks.

Question

Zaytuna Enterprises operates a standard absorption costing system to control the manufacturing costs of its single product, “Eco Blocks”. The following standards have been set:

Description	Standard
Direct material	2 kgs at GH₵6/kg
Direct labour	1 hr at GH₵7/hr
Fixed overheads	GH₵9
Total production cost	GH₵28

The fixed overhead standard cost per unit is based on a budgeted monthly production of 4,000 units.
Actual results for the most recent month were:

Description	Actual
Production	4,300 units
Direct material cost	GH₵56,000 for 9,000 kgs
Direct labour cost	GH₵32,800 for 4,600 hours paid, only 4,000 hours were worked
Fixed overhead	GH₵35,000

No direct material inventories are held.

Required

Calculate the following variances:

(a) Direct material price

(b) Direct material usage

(d) Direct labour efficiency

(e) Idle time

(f) Fixed overhead expenditure

(g) Fixed overhead volume

(h) Fixed overhead capacity

Answer

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Tags: Absorption costing, Labour variances, Manufacturing costs, Material variances, Overhead variances, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q12a – Activity-based costing

Calculate product costs for two products using traditional absorption costing based on machine hours.

Question

MCC has total budgeted production overheads for next year of GH₵816,000 and has traditionally absorbed overheads on a machine hour basis. It makes two products, Product A and Product B.

	Product A	Product B
Direct material cost per unit	GH₵20	GH₵60
Direct labour cost per unit	GH₵50	GH₵40
Machine time per unit	3 hours	4 hours
Annual production	6,000 units	4,000 units

Required:
(a) Calculate the product cost for each of the two products on the assumption the firm continues to absorb overhead costs on a machine hour basis.

The company is considering changing to an activity based costing (ABC) system and has identified the following information:

	Product A	Product B
Number of setups	18	32
Number of purchase orders	48	112

Overhead cost analysis	GH₵
Machine-related overhead costs	204,000
Setup related overhead costs	280,000
Purchasing-related overhead costs	332,000
Total production overheads	816,000

Required:
(b) Calculate the unit cost for each of the two products on the assumption that the firm changes to an ABC system, using whatever assumptions you consider appropriate.

Answer

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Tags: Absorption costing, Activity Based Costing, Cost drivers, Overhead allocation, Production costing
Level: Level 2

Topic: Activity-based costing

Tag (SQ): Absorption costing

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MA – L2 – Q24 – Standard costing and variance analysis

Calculate sales price variance for three products using actual and standard selling prices for TRK Limited.

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

MA – L2 – Q21 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for Tarkwa Manufacturing Ltd. for Period 1 using standard absorption costing.

MA – L2 – Q20 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for South-East Enterprises' product EAGLE using standard costing data for July 20X8.

MA – L2 – Q19 – Standard Costing and Variance Analysis

Calculate the direct material price variance for Zaytuna Enterprises' Eco Blocks.

MA – L2 – Q12a – Activity-based costing

Calculate product costs for two products using traditional absorption costing based on machine hours.

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MA – L2 – Q24 – Standard costing and variance analysis

Calculate sales price variance for three products using actual and standard selling prices for TRK Limited.

You're reporting an error for "MA – L2 – Q24 – Standard costing and variance analysis"

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

You're reporting an error for "MA – L2 – Q22 – Standard Costing and Variance Analysis"

MA – L2 – Q21 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for Tarkwa Manufacturing Ltd. for Period 1 using standard absorption costing.

You're reporting an error for "MA – L2 – Q21 – Standard costing and variance analysis"

MA – L2 – Q20 – Standard costing and variance analysis

Calculate material, labour, and overhead variances for South-East Enterprises' product EAGLE using standard costing data for July 20X8.

You're reporting an error for "MA – L2 – Q20 – Standard costing and variance analysis"

MA – L2 – Q19 – Standard Costing and Variance Analysis

Calculate the direct material price variance for Zaytuna Enterprises' Eco Blocks.

You're reporting an error for "MA – L2 – Q19 – Standard Costing and Variance Analysis"

MA – L2 – Q12a – Activity-based costing

Calculate product costs for two products using traditional absorption costing based on machine hours.

You're reporting an error for "MA – L2 – Q12a – Activity-based costing"

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