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March 16, 2022 at 9:50 pm #651391SukainaKamar
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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;
(a) (i) Budget overhead cost = £150,000 – £6,000
Budget cost/unit = 120% (6 hrs × £5)
Budgeted units =
(ii) Material price variance = £8,000 (F)
Price variance/litre = £0.05 (F)
Quantity purchased =
= 160,000 litres
(iii) Usage variance = £6,000 (A)
Standard price = £2.50/litre
Excess usage =
= 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 =
= 4,020 units
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
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 #651408Anonymous
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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 #651417SukainaKamar
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- 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 #651476mrjonbainModerator
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Anybody coming across this thread, please see repost on following thread –
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