- 16 Marks
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
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