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Prancer Co uses standard costing to control its costs and revenues. A standard cost card for its only product is given below together with a standard cost operating statement for last month.
Standard cost card $ per unit $
Selling price 150
Direct materials 2 kg @ $25/kg 50
Direct labour 3 hours @ $10 per hour 30Fixed overhead 2 hours at $10 per hour 20
Profit 50
Standard cost operating statement
$ $Budgeted profit 600,000
Sales volume variance 60,000 adv
Standard profit on actual sales 540,000
Sales price variance 20,000 fav
560,000
Production cost variances
Material price 7,500fav
Material usage 8,000adv
Labour rate 2,000adv
Labour efficiency 500fav
Fixed overhead expenditure 7,000adv
Fixed overhead volume 2,000adv
19,000adv 8,000 fav 11,000advActual profit 549,000
Select the appropriate words, phrases or numbers to correctly complete the commentary on the last month’s results.
Prancer Co uses standard costing. In the last month actual selling price was standard.
Actual units sold were budgeted and actual sales revenue was $
Production was than budgeted.
Materials caused the biggest cost variances, where a decision to pay standard price resulted in the company using budget.
How to solve this:
Prancer Co uses standard —- costing. In the last month actual selling price was——- standard.
Actual units sold were——- budgeted and actual sales revenue was $—–
Production was —- than budgeted.
Materials caused the biggest cost variances, where a decision to pay—- standard price resulted in the company using—– budget.
Have you watched the free lecture on variances (because you really should be able to answer most parts of the question almost without thinking if you have watched the lecture and therefore understand variances!!)?
1) There is a fixed overhead volume variance, so without bothering about any numbers, this tells you immediately whether it is absorption or marginal costing.
2) The sale price variance is favourable, so you should be able to write down immediately whether the actual selling price was higher or lower than budgeted.
3) The sales volume variance is adverse and so again you should be able to write down immediately where the actual units sold were more or less than budgeted.
4) You know the standard profit on actual sales, and you know the standard profit per unit. So you can calculate the actual sales units. If you know how many units are actually sold then you can calculate the standard sales revenue (by multiplying by the standard selling price of $150 per unit). Adjust this by the sales price variance and you have the actual total sales revenue.
5) The fact that the fixed overhead volume variance is adverse means that they produced less than budgeted.
6) You are given the materials variances. The favourable price variance tells you that they paid less than budgeted. The adverse usage variance tells you that they used more than budgeted.
thank u sir…. watched the lectures and got it all….very nice
just one doubt
is the fixed O/h=2000/200=100(less)? is this right?
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