Standard Costing

MA – L2 – Q31 – Standard costing and variance analysis

Explain types of standards, purposes of standard costing, its problems, and calculate sales, material, wage, and overhead variances for NORGA LIMITED.

Question

NORGA LIMITED

Required:

(a) Explain the following types of standards, stating one advantage and one disadvantage of each:

(i) Basic cost standard
(ii) Ideal standards
(iii) Currently attainable standard

(b) State five purposes of standard costing

(d) From the information provided, calculate the following:

(i) Sales price and sales volume variances
(ii) The total material variance
(iii) The total wage variances
(iv) Total manufacturing overhead variances
(v) Reconciliation of budgeted profit to actual profit

Additional Information:

The following additional information was extracted from the management accounts:

	GH₵
Budgeted net profit for the period	200,000
Actual profit	45,000

Answer

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Tags: Budgeting, Labour variances, Material variances, Overhead variances, Sales Variances, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2- Q29 – Standard Costing and Variance Analysis

Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.

Question

KLM Enterprises Ltd. uses a standard costing system. The following profit statement summarises the performance of the company for August 20X3:

	GH¢	GH¢
Budgeted profit		3,500
Favourable variance:
Material price	16,000
Labour efficiency	11,040	27,040
Adverse variance:
Fixed overheads expenditure	(16,000)
Material usage	(6,000)
Labour rate	(7,520)	(29,520)
Actual profit		1,020

The following information is also available:

Standard material price per unit (GH¢): 4.0
Actual material price per unit (GH¢): 3.9
Standard wage rate per hour (GH¢): 6.0
Standard wage hours per unit: 10
Actual wages (GH¢): 308,480
Actual fixed overheads (GH¢): 316,000
Fixed overheads absorption rate: 100% of direct wages

Required:
(a) Calculate the following from the given data:
(i) Budgeted output in units
(ii) Actual number of units purchased
(iii) Actual units produced
(iv) Actual hours worked
(v) Actual wage rate per hour
(b) State any two possible causes of favourable material price variance, unfavourable material usage variance, favourable labour efficiency variance, and unfavourable labour rate variance.

Answer

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Tags: Budgeted Output, Cost Calculations, Labour variance, Material variance, Performance Analysis, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

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.

Answer

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Tags: Labour variance, Marginal Costing, Material variance, Operating Statement, Sales variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2- Q27 – Advanced Variance Analysis

Calculate material price, mix, and yield variances for Product Z at Tamale Industries using standard and actual cost data.

Question

Tamale Industries has the following standard cost for producing 1 unit of Product Z:

Material	Quantity	Price per kilo	Cost
Material M	5 kilos	GH¢8	GH¢40
Material N	3 kilos	GH¢12	GH¢36

Actual results showed that 9,600 kilos of materials were used during a particular period as follows:

Material	Quantity	Cost
Material M	6,700 kilos	GH¢51,400
Material N	2,900 kilos	GH¢39,500

During the period, 1,250 units of Product Z were produced.

Required:
(a) Calculate the following variances:

Direct materials price variance
Materials mix variance
Materials yield variance
(b) Summarize the standard materials cost, materials price variance, materials mix variance, materials yield variance, and actual materials cost.

Answer

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Tags: Cost Control, Material Mix Variance, Material Price Variance, Material Yield Variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Advanced Variance Analysis

MA – L2 – Q26 – Standard Costing and Variance Analysis

Calculate standard cost sheet for Product AB using given actual costs and variances to determine standard costs and rates.

Question

Standard marginal production cost – Product AB


Direct materials	(8 kilos at GH¢1.50 per kilo)
Direct labour	(2 hours at GH¢4 per hour)
Variable production overhead	(2 hours at GH¢1 per hour)
Standard marginal production cost

Tutorial note: This problem tests your understanding of the formulae for calculating variances. Here, you are given the actual costs and the variances, and have to work back to calculate the standard cost. The answer can be found by filling in the balancing figures for each variance calculation.

Workings
Materials price variance
150,000 kilos of materials did cost
Material price variance
150,000 kilos of materials should cost
(The variance is favourable, so the materials did cost less to buy than they should have cost.)

Materials usage variance
Materials usage variance in GH¢ = GH¢9,000 (A)
Standard price for materials = GH¢1.50
Materials usage variance in kilograms = 9,000 / 1.50 = 6,000 kilos (A) kilos
18,000 units of the product did use
Material usage variance in kilos
18,000 units of the product should use

Required:
Calculate the standard cost sheet for Product AB, including:

Standard price for materials.
Standard quantity of materials per unit.
Standard time per unit for labour.
Variable production overhead rate per hour.

Answer

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Tags: Labour variance, Marginal Costing, Material Price Variance, Material Usage Variance, Overhead variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q25 – Advanced variance analysis

Calculate actual quantity purchased and cost of materials X and Y, including variances, for VRS Limited.

Question

VRS Limited has the following data for a particular period:

Standard consumption quantities:

Material X: 50,000 units × 6 kg = 300,000 kg
Material Y: 50,000 units × 3 kg = 150,000 kg

Adverse quantity variance (quantity used in excess of standard usage):

Material X: 5,000 kg
Material Y: 5,000 kg

Actual quantity used:

Material X: 300,000 kg + 5,000 kg = 305,000 kg
Material Y: 150,000 kg + 5,000 kg = 155,000 kg

Inventory data:

Closing inventory:
- Material X: 300,000 kg × 20/365 = 16,438 kg
- Material Y: 150,000 kg × 20/365 = 8,219 kg
Opening inventory:
- Material X: 300,000 kg × 25/365 = 20,548 kg
- Material Y: 150,000 kg × 25/365 = 10,274 kg

Actual cost data:

Material X: GH₵150,000 ÷ GH₵30 = 5,000 kg (used to calculate actual quantity used)
Standard cost per kilo:
- Material X: GH₵50
- Material Y: GH₵30

Required:
(a) Calculate:

Actual quantity purchased for Materials X and Y.
Actual cost of purchase for Materials X and Y, including price variance and percentage saved on standard rate.
VRS Limited has the following data for a particular period:

Labour rate variance data:
- Actual hours: 168,000
- Standard rates:
  - 3/7 of hours at GH₵150 per hour
  - 4/7 of hours at GH₵100 per hour
- Rate variance: 10% and 5% (Adverse)
Required:
(b) Calculate the labour rate variance and any relevant overhead variances.

Answer

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Tags: Cost analysis, Inventory Valuation, Material Price Variance, Material Usage Variance, Standard Costing
Level: Level 2

Topic: Advanced Variance Analysis

MA – L2 – Q24 – Standard costing and variance analysis

Calculate sales price variance for three products using actual and standard selling prices for TRK Limited.

Question

TRK Limited operates an absorption costing system and sells three products, B, R, and K, which are substitutes for each other. The following standard selling price and cost data relate to these three products:

Product	Selling price per unit	Direct material per unit	Direct labour per unit
B	GH₵14.00	3.00 kg at GH₵1.80 per kg	0.5 hrs at GH₵6.50 per hour
R	GH₵15.00	1.25 kg at GH₵3.28 per kg	0.8 hrs at GH₵6.50 per hour
K	GH₵18.00	1.94 kg at GH₵2.50 per kg	0.7 hrs at GH₵6.50 per hour

Budgeted fixed production overhead for the last period was GH₵81,000. This was absorbed on a machine hour basis. The standard machine hours for each product and the budgeted levels of production and sales for each product for the last period are as follows:

Product	B	R	K
Standard machine hours per unit	0.3 hrs	0.6 hrs	0.8 hrs
Budgeted production and sales (units)	10,000	13,000	9,000

Actual volumes and selling prices for the three products in the last period were as follows:

Product	B	R	K
Actual selling price per unit	GH₵14.50	GH₵15.50	GH₵19.00
Actual production and sales (units)	9,500	13,500	8,500

Required:
(a) Calculate the sales price variance for overall sales for the last period. (b) Calculate the sales volume profit variance for overall sales for the last period.

Answer

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Tags: Absorption costing, Product pricing, Sales price variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

MA – L2 – Q23 – Advanced Variance Analysis

Calculate total materials cost variance for Tamale Chemicals and analyze into price, usage, yield, and mix components for GreenLube production.

Question

Tamale Chemicals, based in Tamale, has the following standard cost for producing 9 litres of GreenLube:

5 litres of Material X at GH₵0.70 per litre
5 litres of Material Y at GH₵0.92 per litre.

There are no inventories of materials, and all material price variances relate to materials used. Actual results showed that 100,000 litres of materials were used during a particular period as follows:

45,000 litres of Material X: cost GH₵36,000
55,000 litres of Material Y: cost GH₵53,350

During the period, 92,070 litres of GreenLube were produced.

Required:
Calculate the total materials cost variance and analyse it into its price, usage, yield, and mix components.

Answer

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Topic: Advanced Variance Analysis

MA – L2 – Q22 – Standard Costing and Variance Analysis

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.

Answer

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Tags: Absorption costing, Budgeting, Labour variance, Material variance, Operating Statement, Overhead variance, Performance Analysis, Sales variance, Standard Costing, Variance analysis
Level: Level 2

Topic: Standard costing and variance analysis

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

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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

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MA – L2 – Q31 – Standard costing and variance analysis

Explain types of standards, purposes of standard costing, its problems, and calculate sales, material, wage, and overhead variances for NORGA LIMITED.

MA – L2- Q29 – Standard Costing and Variance Analysis

Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.

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.

MA – L2- Q27 – Advanced Variance Analysis

Calculate material price, mix, and yield variances for Product Z at Tamale Industries using standard and actual cost data.

MA – L2 – Q26 – Standard Costing and Variance Analysis

Calculate standard cost sheet for Product AB using given actual costs and variances to determine standard costs and rates.

MA – L2 – Q25 – Advanced variance analysis

Calculate actual quantity purchased and cost of materials X and Y, including variances, for VRS Limited.

MA – L2 – Q24 – Standard costing and variance analysis

Calculate sales price variance for three products using actual and standard selling prices for TRK Limited.

MA – L2 – Q23 – Advanced Variance Analysis

Calculate total materials cost variance for Tamale Chemicals and analyze into price, usage, yield, and mix components for GreenLube production.

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

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.

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MA – L2 – Q31 – Standard costing and variance analysis

Explain types of standards, purposes of standard costing, its problems, and calculate sales, material, wage, and overhead variances for NORGA LIMITED.

You're reporting an error for "MA – L2 – Q31 – Standard costing and variance analysis"

MA – L2- Q29 – Standard Costing and Variance Analysis

Calculate budgeted output, material purchased, units produced, hours worked, wage rate, and causes of variances for KLM Enterprises Ltd.

You're reporting an error for "MA – L2- Q29 – Standard Costing and Variance Analysis"

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.

You're reporting an error for "MA – L2- Q28 – Standard Costing and Variance Analysis"

MA – L2- Q27 – Advanced Variance Analysis

Calculate material price, mix, and yield variances for Product Z at Tamale Industries using standard and actual cost data.

You're reporting an error for "MA – L2- Q27 – Advanced Variance Analysis"

MA – L2 – Q26 – Standard Costing and Variance Analysis

Calculate standard cost sheet for Product AB using given actual costs and variances to determine standard costs and rates.

You're reporting an error for "MA – L2 – Q26 – Standard Costing and Variance Analysis"

MA – L2 – Q25 – Advanced variance analysis

Calculate actual quantity purchased and cost of materials X and Y, including variances, for VRS Limited.

You're reporting an error for "MA – L2 – Q25 – Advanced variance analysis"

MA – L2 – Q24 – Standard costing and variance analysis

Calculate sales price variance for three products using actual and standard selling prices for TRK Limited.

You're reporting an error for "MA – L2 – Q24 – Standard costing and variance analysis"

MA – L2 – Q23 – Advanced Variance Analysis

Calculate total materials cost variance for Tamale Chemicals and analyze into price, usage, yield, and mix components for GreenLube production.

You're reporting an error for "MA – L2 – Q23 – Advanced Variance Analysis"

MA – L2 – Q22 – Standard Costing and Variance Analysis

Prepare an operating statement for Tarkwa Industries using standard absorption costing for Product Z, showing specific variances.

You're reporting an error for "MA – L2 – Q22 – Standard Costing and Variance Analysis"

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"

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