- 20 Marks
MA – L2- Q29 – Standard Costing and Variance Analysis
Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.
Question
KLM Enterprises Ltd. uses a standard costing system. The following profit statement summarises the performance of the company for August 20X3:
| GH¢ | GH¢ | |
|---|---|---|
| Budgeted profit | 3,500 | |
| Favourable variance: | ||
| Material price | 16,000 | |
| Labour efficiency | 11,040 | 27,040 |
| Adverse variance: | ||
| Fixed overheads expenditure | (16,000) | |
| Material usage | (6,000) | |
| Labour rate | (7,520) | (29,520) |
| Actual profit | 1,020 |
The following information is also available:
- Standard material price per unit (GH¢): 4.0
- Actual material price per unit (GH¢): 3.9
- Standard wage rate per hour (GH¢): 6.0
- Standard wage hours per unit: 10
- Actual wages (GH¢): 308,480
- Actual fixed overheads (GH¢): 316,000
- Fixed overheads absorption rate: 100% of direct wages
Required:
(a) Calculate the following from the given data:
(i) Budgeted output in units
(ii) Actual number of units purchased
(iii) Actual units produced
(iv) Actual hours worked
(v) Actual wage rate per hour
(b) State any two possible causes of favourable material price variance, unfavourable material usage variance, favourable labour efficiency variance, and unfavourable labour rate variance.
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