- 20 Marks
MA – L2 – Q17- Standard costing and variance analysis
Reconcile actual and budgeted profit using variances for GreenLeaf Organics under marginal costing.
Question
GreenLeaf Organics, based near Tamale, makes a product – the EcoShield Spray. It is an organic alternative to chemical sprays.
For the forthcoming period, budgeted fixed costs were GH₵6,000, and budgeted production and sales were 1,300 units.
The EcoShield Spray has the following standard cost:
| GH₵ | |
|---|---|
| Selling price | 50 |
| Materials 5 kg × GH₵4/kg | 20 |
| Labour 3 hrs × GH₵4/hr | 12 |
| Variable overheads 3 hrs × GH₵3/hr | 9 |
Actual results for the period were as follows:
1,100 units were made and sold, earning revenue of GH₵57,200.
6,600 kg of materials were bought at a cost of GH₵29,700, but only 6,300 kg were used.
3,600 hours of labour were paid for at a cost of GH₵14,220. The total cost for variable overheads was GH₵11,700, and fixed costs were GH₵4,000.
The company uses marginal costing and values all inventory at standard cost.
Required:
(a) Produce a statement reconciling actual and budgeted profit using appropriate variances.
(b) Assuming now that the company uses absorption costing, recalculate the fixed production overhead variances.
(c) Discuss possible causes for the labour variances you have calculated.
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