Standard Costing

A company manufactures a carbonated drink, which is sold in 1 litre bottles. During the bottling process these is a 20% loss of liquid input due to spillage and evaporation. The standard usage of liquid per bottle is A 0.80 liters B 1.00 liters C 1.20 liters D 1.25 liters I wanted to know how to solve this question.

A unit of product L requires 9 active hrs for completion. The performance standard for product London allows for ten per cent of total labour time to be idle, due to machine downtime. The standard wage rate is $9 per hr. What is the standard labour costs per unit of product L? A $72.90 B $81.00 C $89.10 D $90.00 The ans i am getting is option C $89.10 but the correct answer is option D and I can't see how they got that ans.

For every 100 litres of liquid that goes into the process, 20 litres is lost and they only end up with 80 litres. Putting it the other way round, for every 80 litres they end up with they must use 100 litres. So to end up with 1 litre they will need to use 100/80 x 1 = 1.25 litres.

What about the other 2 questions above...

Question 1: The question wants to know what information you would need in order to calculate a standard time (and therefore which of the choices do you not need). You do need to know what type of standard you are after. You do need to know the specifications of the production method. You do not need to know the budgeted production to be able to calculate a standard time per unit. So the answer is B

Question 3: For every 10 hours they pay, they will be idle for 1 hours and therefore will work for 9 hours. Therefore in order to work 9 hours they need to pay for 10 hours at the rate of $9 per hour, which is a total of $90.

A company purchased 6850 kgs of material at a total cost of $21920. The material price Variance was $1370 favourable. The standard price per kg was: A $ 0.20 B $ 3.00 C $ 3.20 D $ 3.40 My solution Rule Material price variance = Cost of actual materI also purchased - actual material purchased at standard cost per kg Therefore, Let the unknown be "help" 1370 = $21920 - ( 6850 × help) (6850 × help) = 21920 - 1370 Help = 20550 / 6850 Help = 3.00 So standard price per kg should be $3.00 No? But this ans is wrong :-(

If they actually paid 21920 and there is a favourable price variance, it means they paid less than they should have paid. So they should have paid 21920 + 1370 = 23290. This is for 6850 kgs, so the standard price per kg is 23290/6850 = $3.40. I do suggest that you watch the free lectures on variance analysis. Our lectures are a complete course covering everything you need to be able to pass Paper F2 well.

I get this part, the way you found out the standard price of material but why did you divide that with actual units purchased (6850 kgs), to get standard price per kg we should have divided standard price with standard units. And standard units aren't given in the question.

If standard units aren't given in the question, we are to suppose that we purchased units according to our standard??

The material price variance is always calculated by comparing the actual purchases at actual cost with the actual purchases at standard cost. The standard usage is not relevant at all - it is only relevant when calculating the usage variance. Again, you should watch our free lectures!

Got it thanks, you are a great help. I did watch the lectures but I don't like this backwards approach that the questions are taking. I get correct answers to the questions where variances are asked, thanks to your lectures, but I get stuck on these ones. Doing terribly bad in them so far :-(

Just keep practicing :-)