- 20 Marks
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.
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