Topic: Standard Costing and Variance Analysis

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  • 5 Marks

MA – Nov 2024 – L2 – Q4b – Standard Costing and Variance Investigation

Explanation of the use of standard costing in decision-making and key factors to consider before investigating variances.

Standard costing has been employed by organizations as a control technique to analyze the deviation of results from those that are expected.

Required:

i) Explain TWO ways managers have effectively deployed standard costing as a tool in decision-making analysis.

ii) Explain THREE key factors a manager should consider before deciding to institute an investigation into reported variances.

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  • 10 Marks

MA – Nov 2024 – L2 – Q3a – Flexible Budget and Variance Analysis

Preparation of a flexible budget and calculation of sales, material, and labour variances.

The budget and actual income statement of Shatta Company PLC for the month of April have been presented in the table below:

Budget Actual
Output (production and sales) 10,000 9,000
GH¢ GH¢
Sales Revenue 175,000 162,000
Raw Materials (80,000) (100,000 meters) (64,380) (74,000 meters)
Labour (35,000) (5,000 hours) (30,960) (4,300 hours)
Fixed Overheads (35,000) (36,225)
Operating Profit 25,000 30,435

Required:

i) Prepare a flexible budget for Shatta Company PLC.

ii) Calculate the following variances using the marginal costing system:

  • Sales (price, volume)
  • Material (price and usage)
  • Labour (rate and efficiency)

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  • 4 Marks

ICMA – Nov 2024 – L1 – Q3d – Fixed Overhead Volume Variance

Explains the concept of fixed overhead volume variance and lists potential causes for such variances.

Fixed Overhead Volume Variance
Fixed overhead volume variance (FOVV) measures the difference between the actual fixed overheads incurred and the fixed overheads that should have been incurred at the actual level of activity.

Required:
Explain fixed overhead volume variance and TWO possible causes of such variances.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q3c – Material and Labour Variances

Calculates material and labour variances based on given actual and standard cost data.

Material and Labour Variances
The data below relates to Agbamame Enterprise for its flagship product, “Herb of Life”:

Standard Cost Card – Per Unit of Herb of Life

Description Cost (GH¢)
Direct materials 5 kg at GH¢4 per kg = GH¢20
Direct labour 4 hours at GH¢15 per DLH = GH¢60
Variable overhead 4 hours at GH¢20 per DLH = GH¢80
Fixed overhead GH¢50 per unit

Budgeted production: 600 units
Actual sales and production: 550 units

Actual cost of:

Actual Costs Cost (GH¢)
Labour (1650 hours) 16,500
Materials (1650 kg) 5,775
Fixed overhead 15,000
Variable overhead 13,275

Data shows that 5% of labour hours paid for was idle, and 10% of materials bought was in stock at the end of the period.

Required:
i) Calculate the material variances.
ii) Calculate the labour variances.

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  • 15 Marks

PM – Nov 2014 – L2 – Q6 – Standard Costing and Variance Analysis

Reconcile budgeted and actual gross profits for GOODLAND Limited, including variance calculations.

GOODLAND Limited produces and sells a single product. The company adopts a standard absorption costing system and absorbs overheads on the basis of direct labour hours. Presented below are the standard cost details and selling price for a single unit of the product:

It has been estimated that the production and sales for the month would be 2,000 units. However, the estimated production for the month has been used as a basis for determining the fixed overhead absorption rate.

The actual results for the month are as follows:

Required:

Prepare a statement that reconciles the budgeted gross profit with the actual gross profit for the month with a detailed computation of all the variances involved. (15 Marks)

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  • 20 Marks

PM – Nov 2014 – L2 – Q2 – Standard Costing and Variance Analysis

Calculate various cost and sales variances, including an operating statement for Ibek Limited.

Ibek Limited manufactures a standard product and operates a system of variance accounting using a fixed budget.

As a newly appointed Management Accountant, you are responsible for preparing the monthly operating statements.

Extracts from the budget for the standard product cost and actual data for the month ended 31 December 2013 are given below:

Budgeted and Standard Cost Data:

  • Budgeted sales and production for the month: 20,000 units
  • Standard cost for each unit of product:
Item Details
Direct materials: A: 10 kg at N2 per kg
B: 5 kg at N10 per kg
Direct wages 5 hours at N6 per hour
Fixed overhead Absorbed at 200% of direct wages
  • Budgeted sales price has been calculated to give a margin of 20% of sales price.

Actual Data for the Month Ended 31 December 2013:

  • Production: 19,000 units sold at a price of 15% higher than that budgeted
  • Direct materials consumed:
Item Quantity Cost per kg
Material A 192,000 kg N2.40
Material B 96,000 kg N9.40
  • Direct wages incurred: 92,000 hours at N6.40 per hour
  • Fixed production overhead incurred: N580,000

Required:

(a) Prepare the operating statement for the month ended 31 December 2013. (3 Marks)

(b) Calculate the following variances: i. Direct material cost variance (5 Marks)
ii. Direct labour variances (5 Marks)
iii. Overhead variances (3 Marks)
iv. Sales variances (4 Marks)

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  • 15 Marks

PM – May 2017 – L2 – SA – Q6 – Standard Costing and Variance Analysis

Advise on optimal replacement timing for AL Limited's machine based on cost-benefit analysis.

AL Limited, a manufacturing company based in Aba, produces a popular mortar coloring agent called Hadtone. Hadtone is packaged in five-litre cartons, sold at ₦300 each. Estimated maximum annual demand is 300,000 cartons, justifying one processing machine, replaced every three years though it has a four-year productive life.

  • Machine Details: Initial productive capacity aligns with maximum demand, decreasing by 15,000 units per annum. Maintenance costs in year one are ₦300,000, rising by ₦50,000 each subsequent year. Variable costs per carton (excluding maintenance) are ₦200.
  • Machine Depreciation: Straight-line method. Sale proceeds after one year are ₦8,000,000, reducing by ₦3,000,000 each following year.
  • Machine Cost Increase: Recent machine cost rise to ₦12,000,000 prompts reconsideration of replacement policy to optimize cash flow. Assume all costs/revenues except initial payment occur year-end; initial cost paid at purchase.

Requirements:

a. Calculate replacement frequency based on maximum capacity usage, including supporting calculations. Assume a 10% cost of capital. (12 Marks)

b. Itemize key assumptions made in the calculations. (3 Marks)

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  • 20 Marks

PM – May 2017 – L2 – SA – Q4 – Standard Costing and Variance Analysis

Calculate budgeted profit and perform variance analysis for Dabens Nigeria's job costing system.

  1. Dabens Nigeria Limited’s job costing system includes two direct cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products based on standard direct manufacturing labor hours (SDMLH). At the beginning of 2016, Dabens adopted the following standards for manufacturing costs and sales:
    S/N Cost Details Input Cost per Output Unit (N)
    1 Direct Materials 3 kg at N500 1,500
    2 Direct Manufacturing Labor 5 hours at N200 1,000
    3 Manufacturing Overhead: Variable N120 per SDMLH 600
    Manufacturing Overhead: Fixed N160 per SDMLH 800
    4 Unit Manufacturing Cost 3,900
    5 Standard Profit Margin 1,300
    6 Standard Selling Price 5,200

    The denominator level for total manufacturing overhead per month in 2016 is 40,000 direct manufacturing labor hours. Dabens’ flexible budget for January 2016 was based on this denominator level. January records show the following data:

    • Direct materials purchased: 25,000 kg at N520 per kg
    • Direct materials used: 23,100 kg
    • Direct manufacturing labor: 40,100 hours at N190 per hour
    • Total actual manufacturing overhead (fixed and variable): N12,000,000
    • Actual production/sales: 7,800 output units
    • Actual selling price: N5,350

    The proportion of actual variable and fixed overhead costs is consistent with the standard.

    Required:

    a. Calculate the budgeted profit of the company for January 2016.
    (2 Marks)

    b. Calculate the following variances for January 2016:

    • i. Direct material variances
    • ii. Direct manufacturing labor variances
    • iii. Variable manufacturing overhead variances
    • iv. Fixed manufacturing overhead variances
    • v. Sales variances
      (10 Marks)

    c. Prepare a statement reconciling the actual profit with the budgeted profit.
    (8 Marks)

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  • 15 Marks

PM – Nov 2015 – L2 – Q5 – Standard Costing and Variance Analysis

Calculate material, labour, and variable overhead variances, and discuss causes for variances in KOMERE Limited’s cost system.

KOMERE Limited operates a Standard Costing System. Below are the standard and actual costs for October 2015:

Standard Cost Information:

Direct Material:

  • A: 20 kg at N100 per kg = N2,000
  • B: 30 kg at N80 per kg = N2,400

Direct Labour:

  • Skilled: 10 hours at N40 per hour = N400
  • Unskilled: 10 hours at N25 per hour = N400

Variable Overhead Cost:

  • 10 hours at N20 per hour = N200

Total Standard Cost per unit = N5,250

Actual Results:

  • Direct Material:
    • Material A: 105,000 kg purchased at N10,290,000; 99,000 kg consumed
    • Material B: 148,000 kg purchased at N11,988,000; 144,000 kg consumed
  • Direct Labour:
    • Skilled Labour: 56,000 hours at N2,352,000
    • Unskilled Labour: 56,000 hours at N1,344,000
  • Variable Overhead: N1,064,000
  • Actual Production: 4,800 units

Required:

(a) Calculate all the relevant variances. (8 Marks)

(b) What are possible causes of the variances computed? (7 Marks)

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  • 20 Marks

PM – Nov 2015 – L2 – Q2 – Standard Costing and Variance Analysis

Calculate material price and usage planning and operational variances for wheat used in baking cake and bread, and discuss the benefits of these variances.

Pestel Limited produces cake and bread which it supplies to a major supermarket in
Abuja. It holds no inventories because it adopts the Just-In-Time (JIT) system.
The standard cost of the wheat used in baking the products is N200 per kg. Each piece
of cake uses 0.5kg of wheat while each loaf of bread uses 2kg of wheat.
The production levels for cake and bread for the month of October were as follows:

The actual cost of wheat in October was N232 per kg. 496,000kg of wheat was used to
bake the bread and 190,000kg was used to bake the cake.
The global prices of wheat increased by 18% in the month of October.

At the beginning of the month, the supermarket group made an expected request for an
immediate shape change to the cake resulting in 5% more wheat than previously
required. This change also brought about production delays which caused a reduction in
production by 20,000 units of cake in that month. The production director is given the
task of purchasing relevant input materials and any production request which occur,
although he does not take responsibility for setting standard costs.
Required:

(a) Compute the following variances for the month of October for each product and in total:

(i) Material price planning variances, (4 Marks)

(ii) Material price operational variances. (4 Marks)

(iii) Material usage planning variances, (4 Marks)

(iv) Material usage operational variances (4 Marks)

(b) Discuss the benefits of planning and operational variances to a management accountant. (4 Marks)

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  • 10 Marks

MA – April 2022 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 15 Marks

MA – May 2017 – L2 – Q5 – Standard costing and variance analysis

Prepare a statement reconciling budgeted profit with actual profit, showing individual variances in detail.

You are the Management Accountant of ABS Limited. The following computer printout shows details relating to June 2017.

Description Actual Budget
Sales volume (units) 4,900 5,000
Selling price per unit (GH¢) 11.00 10.00
Production volume (units) 5,400 5,000
Direct materials:
– Quantity (kg) 10,600 10,000
– Price per kg (GH¢) 0.60 0.50
Direct labour:
– Hours per unit 0.55 0.50
– Rate per hour (GH¢) 3.80 4.00
Fixed overhead:
– Production (GH¢) 10,300 10,000
– Administration (GH¢) 3,100 3,000

ABS Limited uses a standard absorption costing system. There was no opening or closing work-in-progress.

Required:

Prepare a statement that reconciles the budgeted profit with the actual profit for June 2017, showing individual variances in detail. (15 marks)

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  • 15 Marks

MA – May 2017 – L2 – Q3a – Standard costing and variance analysis

Calculate the budgeted fixed production overhead costs and prepare profit statements using marginal and absorption costing.

Bosco Ltd makes and sells one product. Currently, it uses absorption costing to measure profits and inventory values. The budgeted production cost per unit is as follows:

Item Cost (GH¢)
Direct labour (3 hours at GH¢6 per hour) 18
Direct materials (4 kilograms at GH¢7 per kilo) 28
Production Overhead (Fixed cost) 20
Total Cost per Unit 66

Normal output volume is 16,000 units per year, and this volume is used to establish the fixed overhead absorption rate for each year. Costs relating to sales, distribution, and administration are:

  • Variable: 20% of sales value
  • Fixed: GH¢180,000 per year

There were no units of finished goods inventory on 1st October 2015. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is GH¢140. For the two six-monthly periods detailed below, the number of units to be produced and sold are budgeted as follows:

Period Production (units) Sales (units)
Six months ending 31st March 2016 8,500 7,000
Six months ending 30th September 2016 7,000 8,000

The entity is considering whether to abandon absorption costing and use marginal costing instead for profit reporting and inventory valuation.

Required:

i) Calculate the budgeted fixed production overhead costs for each of the six-monthly periods. (3 marks)

ii) Prepare profit statements for management using:

  • Marginal costing
  • Absorption costing

(9 marks)

iii) Prepare an explanatory statement reconciling the profits under marginal costing with those of absorption costing.

(3 marks)

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  • 9 Marks

MA – Nov 2015 – L2 – Q1d – Standard costing and variance analysis

Calculate sales, material, wage, overhead variances, and reconcile budgeted profit to actual profit.

You have been asked as a cost accountant to reconcile the Budgeted profit to the actual profit using the variance report generated by the management accountant.

i. Calculate the sales variances (2 marks)
ii. The total material variance (1 mark)
iii. The total wage variances (1 mark)
iv. Total manufacturing overhead variances (1 mark)
v. Reconciliation of Budget profit to the actual profit (4 marks)

(Total = 9 marks)

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  • 4 Marks

MA – Nov 2015 – L2 – Q1c – Standard costing and variance analysis

Explain four problems associated with standard costing in today's environment.

Explain FOUR (4) problems associated with standard costing in today’s environment. (4 marks)

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  • 4 Marks

MA – Nov 2015 – L2 – Q1b – Standard costing and variance analysis

Evaluate four purposes of standard costing.

Evaluate FOUR (4) purposes of standard costing. (4 marks)

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  • 3 Marks

MA – Nov 2015 – L2 – Q1a – Standard costing and variance analysis

Explain basic cost standards, ideal standards, and currently attainable standards.

Explain the following terms as used in standard costing. (3 marks)
i. Basic cost standards
ii. Ideal standard
iii. Currently attainable standards

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  • 15 Marks

MA – Nov 2016 – L2 – Q4a – Standard costing and variance analysis

Calculate various sales, material, labour, and overhead variances for Jungle Twist Ltd based on the provided data.

Jungle Twist Ltd manufactures quality blocks for the housing industry in Ghana. It operates a standard marginal costing system. The following standard costs, volume, and revenue data for the quarter ending 31 October 2015 are provided:

Standard cost card:

  • Selling price: GH¢18 per block
  • Costs:
    • Direct material P: 3 kg at GH¢2.60 per kg
    • Direct material Q: 2 kg at GH¢2.50 per kg
    • Direct labour: 2 hours at GH¢0.60 per hour
    • Variable overheads: GH¢0.50 per direct labour hour
  • Budgeted sales for the quarter: 62,500 blocks
  • Variable overheads are absorbed at the rate of GH¢0.50 per direct labour hour.
  • Fixed production overhead for the quarter is estimated to be GH¢78,500.

The following actual results were recorded for the quarter just ended 31 October 2015:

  • Production: 60,000 blocks
  • Sales: 58,000 blocks
  • Selling price: GH¢17.00 per block
  • Direct material P: 150,000 kg were bought and used at GH¢360,000
  • Direct material Q: 109,000 kg were bought and used at GH¢327,000
  • Direct labour: 108,000 hours were worked for at a cost of GH¢90,400
  • Variable overheads: GH¢82,000
  • Fixed production overheads: GH¢80,000

Required:
Calculate the following variances for the quarter just ended 30 September 2015:

i) Sales volume and sales price variances; (3 marks)

ii) Price and usage variances for each material; (3 marks)

iii) Mix and yield variance for each material; (3 marks)

iv) Labour rate, labour efficiency, and idle time variances; (3 marks)

v) Variable overheads expenditure and variable overheads efficiency variances. (3 marks)

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  • 20 Marks

IMAC – MAR 2024 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate daily variations using moving averages and explain interrelationships between material price and usage variances, and labor rate and efficiency variances.

a) BB Importers Ltd has been importing electrical gadgets through the port of Takoradi over the past ten years. Management is aware that the business has been facing seasonal fluctuations but there is no scientific basis for the determination of such variations that can be used to predict future revenue. As a newly recruited Cost Accountant, you have been provided with some past daily sales performance over a three-week period. Details of the sales performance are shown below:

Sales Monday Tuesday Wednesday Thursday Friday
Week 1 780 830 890 850 850
Week 2 880 930 990 950 950
Week 3 980 1030 1090 1050 1050

Required:
Using daily moving averages, calculate the daily variation for the company. (15 marks)

b) The reasons for variances might be connected, and two or more variances may arise from the same cause. For example, a favorable variance and an adverse variance might have the same cause.

Required:
Explain the interrelationships between:
i) Material price and usage variances (2.5 marks)
ii) Labor rate and efficiency variances (2.5 marks)

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