Question

Nyundo Ltd manufactures a product whose standard variable cost is given below: Direct materials (2 kg @ Sh 3) Direct labour (0.75 hours @ Sh 4) Variable overheads The company treats fixed costs as period costs and therefore they are not charged to products. The following information relates to the month of March 2001. 1/10/2019 31/10/2019 Sh Sh Stocks (all at standard cost) Raw materials 12,000 6,000 Finished goods 36,000 42,500 The following information is available for the month of March 2001: Sh Sales @ Sh 20 per unit Material purchases @ Sh 3.50 per kg Direct labour cost (8000 hours) Variable overheads Material price variance (adverse) 200,000 42,000 30,000 12,000 21,000 The management is wondering whether they could have performed better. Required: Calculate the following variances in each case stating two possible causes: a) Material usage variance b) Labour rate variance. c) Labour efficiency variance. d) Variable overhead expenditure variance: e) Variable overhead efficiency variance.

Answer 1

Material usage variance= 39000(favorable)

labour rate varaience = 12700(favorable)

labour efficency variece = -2670(adverse)

variable overhead expenditure varience = 4000(favorable )

variable overhead efficency varience = 500(favorable)
Ca material Cost Vaniance Material price vanance Vartance Maten'al usa& Actual unte Sold 200000 2 lo000 20 Material Cost varance STandard Actue Cost Cost - (tooox 2x3)-b0o 60000 42000 18 000 tavoroublu thne-fore -21000 X 18000 = t8000 21000 X Material usaj 31000 fororable Vaniane

6) Labour vate Varience - STandayd 05hourt @ Vate Per hour- S.34 - Ihour Attua1 30000 3.75 Vate S000 Fer hour ACTUal hour formule Staudavd Actuolx Rate Rate [sM-3500 124 00 favovable (el Labour etfiunty Varience Standard Rate Actual Standard hours hour 2 -[015x1o00- 80o0x A500-8000 XS 3 1-2670 Advevse S0ODJX S34

(d) Variable Overhead eependiture voyience Actual SIrmdard Rate Actual ours X worced Stundard Rate 12000 8000 X 8 00D BoOD X (e) Variable oveshead e Vanience Standard Ovenhasd X Late Stundard hour ActUa h0urs B000- 075X LO000X S000-4500 [fvorobe T