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standard costing and variance

Forums › ACCA Forums › ACCA PM Performance Management Forums › standard costing and variance

  • This topic has 5 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • March 17, 2022 at 11:44 am #651418
    SukainaKamar
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Q Ltd operates a system of standard costing and in respect of one of its products which
    is manufactured within a single cost centre, the following information is given.
    For one unit of product the standard material input is 16 litres at a standard price of
    £2.50 per litre. The standard wage rate is £5 per hour and 6 hours are allowed in which
    to produce one unit. Fixed production overhead is absorbed at the rate of 120% of
    direct wages cost.
    During the last four-week accounting period:
    The material price variance was extracted on purchase and the actual price paid was
    £2.45 per litre.
    Total direct wages cost was £121,500.
    Fixed production overhead incurred was £150,000.
    Variances Favourable Adverse
    £ £
    Direct material price 8,000
    Direct material usage 6,000
    Direct labour rate 4,500
    Direct labour efficiency 3,600
    Fixed production overhead expenditure 6,000
    You are required to calculate for the four-week period:
    (i) budgeted output in units;
    (ii) number of litres purchased;
    (iii) number of litres used above standard allowed;
    (iv) actual units produced;

    Workings
    (a) (i) Budget overhead cost = £150,000 – £6,000
    = £144,000
    Budget cost/unit = 120% (6 hrs × £5)
    = £36
    Budgeted units =
    £36
    £144,000
    = 4,000
    (ii) Material price variance = £8,000 (F)
    Price variance/litre = £0.05 (F)
    Quantity purchased =
    05.0£
    ,8£ 000
    = 160,000 litres
    (iii) Usage variance = £6,000 (A)
    Standard price = £2.50/litre
    Excess usage =
    50.2£
    ,6£ 000
    = 2,400 litres
    (iv) Actual wage cost = £121,500
    Total wage variance = £900 (A)
    –––––––
    Standard cost = £120,600
    –––––––
    Standard cost/unit = 6 hours @ £5 = £30
    Actual output =
    £30
    £120,600
    = 4,020 units

    problem
    I understand how the 4020 actual units have been calculated, however if inserted to calculate a variance, say direct material usage variance it will not give -6000 as per the question.

    material usage variance=((16*4020)-160000)*2.5= -239200
    while the question says its -6000

    Another way to calculate the variance is using the material usage variance
    material usage variance= (160000- std qty)*2.5
    -6000=(160000-std qty)*2.5
    std quantity= 157600 litres
    no. of units= 157600/16=9850 units.

    However if 9850 units is used then labour rate variance will not be -4500

    either way, the units calculated are different and non fit into each other.
    Please i hope you can assist me understand if im going wrong anywhere.

    thank you.

    March 17, 2022 at 3:34 pm #651429
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other 🙂

    It does seem that there is a typing mistake in either the question or the answer in your book (assuming that you have copied the question correctly).

    If it is in the current edition of the BPP Revision Kit then tell me which question and I will check for myself.

    March 20, 2022 at 7:33 pm #651562
    SukainaKamar
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Hello Sir, sorry for a late response.
    Thank you, i’ll keep that in mind next time.
    The question is actually from a set of LRP questions.
    specifically Qn 21.
    It is a document i found in the StuDocu App.
    Perhaps the document may have a mistake then.
    Regardless of the case, I hope my way of analysing the question correct.

    kindly,
    Sukaina.

    March 21, 2022 at 8:16 am #651576
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    I do not know the StuDocu app, but from what you have typed their answer does seem to be wrong.

    (You should be using a Revision Kit from one of the ACCA Approved Publishers.)

    March 21, 2022 at 11:44 am #651586
    SukainaKamar
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Ok thank you sir.

    March 21, 2022 at 4:05 pm #651595
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘standard costing and variance’ is closed to new replies.

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