- 20 Marks
MA – L2- Q28 – Standard Costing and Variance Analysis
Calculate sales, material, and labour variances for Zest Foods Ltd. and prepare an operating statement reconciling budgeted to actual gross profit.
Question
Zest Foods Ltd., a premium food manufacturer operating out of Tamale, is reviewing operations for a three-month period of 20X8. The company operates a standard marginal costing system and manufactures one product, ZP, for which the following standard revenue and cost data per unit of product is available:
| Selling price | GH¢ 12.00 |
|---|---|
| Direct material A | 2.5 kg at GH¢ 1.70 per kg |
| Direct material B | 1.5 kg at GH¢ 1.20 per kg |
| Direct labour | 0.45 hrs at GH¢ 6.00 per hour |
Fixed production overheads for the three-month period were expected to be GH¢ 62,500.
Actual data for the three-month period was as follows:
- Sales and production: 48,000 units of ZP were produced and sold for GH¢ 580,800
- Direct material A: 121,951 kg were used at a cost of GH¢ 200,000
- Direct material B: 67,200 kg were used at a cost of GH¢ 84,000
- Direct labour: Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of GH¢ 117,120
- Fixed production overheads: GH¢ 64,000
Budgeted sales for the three-month period were 50,000 units of Product ZP.
Required:
(a) Calculate the following variances:
(i) Sales volume contribution and sales price variances;
(ii) Price, mix, and yield variances for each material;
(iii) Labour rate, labour efficiency, and idle time variances.
(b) Prepare an operating statement that reconciles budgeted gross profit to actual gross profit with each variance clearly shown.
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