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standard costing and variance

Forums › ACCA Forums › ACCA TX Taxation Forums › standard costing and variance

  • This topic has 3 replies, 3 voices, and was last updated 10 months ago by mrjonbain.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • March 16, 2022 at 9:50 pm #651391
    SukainaKamar
    Member
    • 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 9:13 am #651408
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 5
    • ☆

    This has nothing to do with ACCA Taxation (was F6). Perhaps ask in the MA or PM Ask the Tutor forums.

    March 17, 2022 at 11:37 am #651417
    SukainaKamar
    Member
    • Topics: 20
    • Replies: 20
    • ☆

    OMG yes i made a mistake, i posted on the wrong forum!!!
    Thanks for notifying me.
    Also, sorry lecturer.

    March 17, 2022 at 11:34 pm #651476
    mrjonbain
    Moderator
    • Topics: 1
    • Replies: 1580
    • ☆☆☆☆☆

    Anybody coming across this thread, please see repost on following thread –

    https://opentuition.com/forum/acca-forums/acca-pm-performance-management-forums/

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