Standard costing and variance analysis

Belta manufacturing company produces a single product, which is known as the Princo. The product undergoes a
single operation in its manufacture.

The standard cost for this operation is presented in the following standard
cost card:

Standard cost card for the product Princo K’000
Direct materials:
2kg of Y at K10000 per kg 20
1kg of Z at K15000 per kg 15
Direct labour (3 hours at K9000 per hour) 27
Variable overhead (3 hours at K2000 per direct labour hour) 6
Total standard variable cost 68
Standard contribution margin 20
Standard selling price 88

Belta limited plan to produce 10,000 units of Princo in the month of May, and the budgeted costs based on the
information contained in the standard cost card are as follows:

Budget based on the above standard costs and an output of 10,000 units
K’000 K’000 K’000
Sales (10,000 units at K88,000 per unit)
Direct materials:
Y: 20,000kg at K10000 per kg 200,000
880,000
Z: 10,000kg at K15000 per kg 150,000 350,000
Direct labour (30,000 hours at K9000 per hour) 270,000
Variable overheads (30,000 hours at K2000 per hour) 60,000 680,000
Budgeted contribution 200,000
Fixed overheads 120,000
The Budgeted profit 80,000

Annual budgeted fixed overheads are K1, 440,000,000 and are assumed to be incurred evenly throughout the
year. The company uses a variable (marginal) costing system for internal profit measurement purposes.

The actual results for May are as follows:
K’000 K’000 K’000
Sales (9,000 units at K90,000 per unit) Direct
materials:
810,000
Y: 19,000 kg at K11,000 per kg 209,000
Z: 10,100 kg at K14,000 per kg 141,400 350,400
Direct labour (28,500 hours at K9,600 per hour) 273,600
Variable overheads 52,000 676,000
Contribution 134,000
Fixed overheads 116,000
Profit 18,000

Actual production and sales for the period were 9,000 units.

Required:

Calculate sales, variable cost and fixed overhead variances AND prepare an operating statement