Manufacturing costs

MA – L2 – Q52a – Relevant Cost and Revenue

Advise whether Okonku Enterprises should discontinue Double bed production based on contribution and profit impact.

Question

Okonku Enterprises produces Single, Double, and King size beds for sale to hotels in West Africa. Its manufacturing plant is located in Keta and is currently producing at 100% capacity. Below is the annual output and sales for each product and the associated costs.

Product	Single bed	Double bed	King Size
Units sold	5,000 units	3,500 units	4,000 units
Sales	GH₵ 2,500,000	GH₵ 2,800,000	GH₵ 3,800,000
Cost
Material cost	750,000	1,400,000	1,520,000
Labour costs	600,000	1,050,000	1,200,000
Manufacturing O’head	200,000	650,000	300,000
Administrative cost	200,000	100,000	200,000
Total cost	1,750,000	3,200,000	3,220,000
Profit /Loss	750,000	(400,000)	580,000

The Director of Okonku is of the view that the product Double bed is not doing well and must not be produced any longer. The following additional information has been provided.
(i) 40% of the labour cost for all bed types are fixed costs.
(ii) 50% of the manufacturing overhead is variable costs for all products.
(iii) 80% of the administrative cost is fixed.

Required:
(a) Advise whether the company should shut down the production of Double beds.

(b) Should the company accept the new order assuming Double beds will still be produced?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contribution Analysis, decision making, fixed costs, Hotel Industry, Manufacturing costs, Product Discontinuation, Profit Impact, Relevant Cost, Short-Term Decisions, variable costs
Level: Level 2

Topic: Relevant cost and revenue

MA – L2 – Q44 – Relevant cost and revenue

Recommend whether TechLink Solutions should buy new equipment or outsource electronic modules for 400,000 units annually.

Question

TechLink Solutions Limited manufactures and sells routers. It manufactures its own electronic modules (EM), an important part of the router. The present cost to manufacture an EM is as follows:

	GH¢
Direct material	250
Direct labour	300
Variable overheads	150
Fixed overheads
Depreciation	100
General overheads	150
Total cost per unit	950

The company manufactures 400,000 units annually. The equipment being used for manufacturing EM has worn out completely and requires replacement. The company is presently considering the following options:
(A) Purchase new equipment which would cost GH¢ 240 million and have a useful life of six years with no salvage value. The company uses straight-line method of depreciation. The new equipment has the capacity to produce 600,000 units per year. It is expected that the use of new equipment would reduce the direct labour and variable overhead cost by 20%.
(B) Purchase from an external supplier at GH¢ 730 per unit under a two-year contract.
The total general overheads would remain the same in either case. The company has no other use for the space being used to manufacture the EMs.

Required:
(a) Which course of action would you recommend to the company assuming that 400,000 units are needed each year? (Show all relevant calculations)

(b) What would be your recommendation if the company’s annual requirements were 600,000 units?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost analysis, Equipment replacement, Incremental costs, Make-or-Buy Decision, Manufacturing costs, Outsourcing, Relevant costs
Level: Level 2

Topic: Decision making techniques, Relevant cost and revenue

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

Find Related Questions by Tags, levels, etc.

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

Find Related Questions by Tags, levels, etc.

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

Find Related Questions by Tags, levels, etc.

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

Topic: Standard costing and variance analysis

Tag (SQ): Manufacturing costs

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

MA – L2 – Q52a – Relevant Cost and Revenue

Advise whether Okonku Enterprises should discontinue Double bed production based on contribution and profit impact.

MA – L2 – Q44 – Relevant cost and revenue

Recommend whether TechLink Solutions should buy new equipment or outsource electronic modules for 400,000 units annually.

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.

Our offerings

Community

Contact Info

Customer

Get In Touch

Tag (SQ): Manufacturing costs

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

MA – L2 – Q52a – Relevant Cost and Revenue

Advise whether Okonku Enterprises should discontinue Double bed production based on contribution and profit impact.

You're reporting an error for "MA – L2 – Q52a – Relevant Cost and Revenue"

MA – L2 – Q44 – Relevant cost and revenue

Recommend whether TechLink Solutions should buy new equipment or outsource electronic modules for 400,000 units annually.

You're reporting an error for "MA – L2 – Q44 – Relevant cost and revenue"

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"

Our offerings

Community

Contact Info

Customer

Get In Touch

admin

Pick a Form