ACCA PM · Guided practice (Show me how)
Chapter 13: Standard Costing and Basic Variance Analysis
Standard costing - flex, analyse and reconcile to actual profit
A company has prepared the following standard cost card:
| $ per unit | |
|---|---|
| Materials (4 kg at $4.50 per kg) | 18 |
| Labour (5 hrs at $5 per hr) | 25 |
| Variable overheads (5 hrs at $2 per hr) | 10 |
| Fixed overheads (5 hrs at $3 per hr) | 15 |
| 68 |
Budgeted selling price $75 per unit. Budgeted production 8,700 units; budgeted sales 8,000 units. There is no opening inventory.
The actual results are as follows. Sales: 8,400 units for $613,200. Production: 8,900 units with the following costs:
| Materials (35,464 kg) | 163,455 |
| Labour (45,400 hrs paid, 44,100 hrs worked) | 224,515 |
| Variable overheads | 87,348 |
| Fixed overheads | 134,074 |
The company uses absorption costing and values inventory at the standard cost of $68 per unit. Prepare a flexed budget and calculate the total variances; analyse the variances; and produce an operating statement reconciling the budgeted profit with the actual profit.
Sign convention: favourable = positive, adverse = negative. (The notes print each variance with (F) or (A).) Labour is dealt with as one total variance in this exercise.
(a) The flexed budget
Prepare the company's flexed budget for actual sales and production volumes for the period.
(b) Total variances
Calculate the company's total materials and labour variances, actual profit and total profit variance for the period.
(c) Materials and variable overheads analysed
Calculate the company's materials price and usage variances and variable overhead expenditure and efficiency variances for the period.
(d) Fixed overheads and sales analysed
Calculate the company's fixed overhead expenditure, capacity and efficiency variances and sales price and volume variances for the period.
(e) The operating statement
Prepare the company's operating statement reconciling original budget profit to actual profit for the period.
Opening this exercise…