- This topic has 5 replies, 2 voices, and was last updated 11 months ago by
.
- Posts
Hi,
I’m currently stuck on a Kaplan study text TYU question.
The question [along with the answers provided by Kaplan] is:
Brake Ltd manufactures and distributes brake discs to the automotive
sector. The company operates an integrated standard cost system in
which:
? Purchases of materials are recorded at standard cost
? Direct material costs and direct labour costs are variable
? Production overheads are fixed and absorbed using direct labour
hours.
Actual and budgeted data for May are shown below:
? Budgeted direct materials per unit – 2 kg at $5 per kg
? Direct labour – 0.5 hours per unit
? Budgeted production for the month was 10,000 units
? 22,500 Kgs of material were purchased
? The total standard cost of the materials was $115,000
? 6,000 direct labour hours were worked at a cost of $6 per hour.
? Budgeted Fixed production overheads in the period were
$240,000
? Actual fixed production overheads in the period were $260,000.
Variances calculated for May are as follows:
? Material price variance $11,250A
? Labour efficiency variance $1,750A.
Required:
1 Calculate the actual number of brake discs manufactured [Answer: 11,500 units]
2 Calculate the actual price paid per kg of material [$5.50]
3 Calculate the material usage variance [$2,500F]
4 Calculate the standard rate per labour hour [$7]
5 Calculate the labour rate variance [$6,000]
6 Calculate the fixed overhead expenditure variance [$20,000A]
7 Calculate the overhead absorption rate per labour hour [$48 per labour hour]
8 Calculate the fixed overhead capacity variance [$48,000F]
9 Calculate the fixed overhead efficiency variance [$12,000A]
10 Calculate the fixed overhead volume variance. [$36,000F]The solution given in the book doesn’t give a detailed breakdown of the answers. Any chance, somebody could explain how the answers are calculated, especially the first one. Many thanks.
Surely you must have been able to calculate some of the variances. Which ones are you not clear about?
(I assume that you have watched all of our free lectures on variance analysis?)
So my main concern is with the first question. Obviously the answer is given, which is 11,500 units. I figure that you get this answer by taking the total standard cost of materials purchased, $115,ooo, and dividing it by $5 to get the amount of materials in kg as 23,000kg and then dividing by 2kg per unit to get the actual number of break discs manufactured,11,500 units.
What I don’t understand is the part in the question which states 22,500kgs of materials were purchased.
The question tells you that materials purchased are recorded at standard cost, so 22,500kgs of material at standard cost would be 22,500 x $5 per kg = $112,500.
The next info given in the questions says ‘The total standard cost of the materials was $115,000’.What am I missing? Why are these dollar amounts different?
When I was trying to get the answer to question 1, I took the 22,500kgs purchased and divided by 2kg per unit to get 11,250 units.
This is where my main confusion lies.
Any help explaining this part would be really appreciated.
This is indeed a confusing question because it has all been very badly worded by Kaplan.
They manufactured 11,500 units and so they should have used 11,500 x 2 = 23,000 kg of material. This should have cost 23,000 x 5 = $115,000.
However the actually purchased only 22,500 kg and so they used 500kg less than they should have. This gives the materials usage variance of 500 x 5 = $2,500 (F)
Got you, so when they say total standard cost of materials, they are talking about materials used and not materials purchased.
Thank you so much!
- You must be logged in to reply to this topic.