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Standard Costing – Variances – Trying to calculate standard rate per labour hour

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Standard Costing – Variances – Trying to calculate standard rate per labour hour

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 5, 2016 at 8:43 am #309037
    kirit
    Member
    • Topics: 22
    • Replies: 33
    • ☆☆

    I’m a newcomer to your site and forum and I have started studying the ACCA F2 FMA.

    Unfortunately, I’ve become stuck on a question which falls under Standard Costing- Variances. The question is as follows:

    Car Company manufacturers & distributes brake discs to the car industry. The company operates integrated Standard Costing system where:

    Purchases of materials are recorded at standard cost
    Direct materials & labour costs are variable
    Production overheads are fixed & absorbed using direct labour hours

    Actual & Budgeted data for May is as follows:

    Budgeted Direct Materials per unit – 2kg at £5 per kg
    Direct labour – 0.5 hrs per unit
    Budgeted production for the month – 10,000 units
    22,500 kg of materials were purchased
    Total standard cost of materials were £115,000
    6000 direct labour hours were worked at £6 per hour
    Budgeted Fixed production overheads were £240,000
    Actual Fixed production overheads were £260,000

    Variances for May were:
    Material Price variance £11,250 Adverse
    Labour efficiency variance £1,750 Adverse

    Question:
    Calculate the Actual number of brake discs produced?

    My answer was as follows:
    £115,000 / (2kg * £5) = £115,000 / £10 = 11,500 units

    However, I have now become completely stuck on the following question and would be grateful for your assistance please.

    Question:
    Calculate the standard rate per labour hour ?

    Thank you

    April 5, 2016 at 9:04 am #309044
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    The standard hours for the actual production = 11,500 x 0.5 = 5,750 hours.
    Since they actually took 6,000 hours, the efficiency variance is 250 hours.

    Therefore the standard rate per hour = 1750 / 250 = $7

    (Have you watched our free lectures on variances? Our lectures are a complete course for Paper F2 and cover everything needed to pass the exam well.)

    April 5, 2016 at 9:25 am #309052
    kirit
    Member
    • Topics: 22
    • Replies: 33
    • ☆☆

    Thank you very much for your assistance John. I’m grateful.

    I shall indeed start to use your course materials including the lecture on variances, alongside my study materials. Thank you for your guidance.

    Kind regards

    April 5, 2016 at 7:17 pm #309103
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    You are very welcome 🙂

  • Author
    Posts
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