Question

QUESTION 1: IDE company manufactures and sales one product. There is no opening or closing inventories and work in progress is negligible. The company operates a standard costing system and analysis of variances and reports are prepared every month for management's planning control and decision making. The below product information is given; Standard selling price K32 Standard contribution K13.4 Variable overheads 2hrs@30ngwee/hr k0.60 Direct wages 2hrs@K8/hr K16 Direct Materials 0.5kgs @K4/kg K2 Further information is given as follows: Variable overheads amounted to K2.600 with actual operating hours amounted to 8000 hours. Actual and budgeted Output for the month of February 2020 was 4850 units and 5100 units respectively. Actual output was sold for K150, 350.2 300kgs were actually used in the production process costing K9,800.8,500hrs were paid for at a cost of K67, 800 REQUIRED a. Calculate the following variances 61) Sales volume contribution variance (ii) Sales price variance Giii) Variable overhead efficiency variance (iv) Variable overhead expenditure variance (v) Idle time variance (vi) Labour efficiency variance (vii) Labour rate variance (viii) Material usage variance (ix) Material price variance (1mark each x 9)

Answer 1

Ans-1.(a.) Calculation of Variances

(i) Sales Volume Contribution variance= (Actual Output- Standard Output) x Standard Contribution Per Unit

=(4850 Units - 5100 Units) x K13.4

=3350 Unfavourable

(ii) Sales Price Variance = (Standard Sale Price per Unit - Actual Sales Price Per Unit) x Actual Output

=(K32 - K150350/4850 units) x 4850 units

=(K32 -K31) x 4850 units

= 4850 Favourable

(iii) Variable Overhaed Efficency variance = (Standard hours- Actual hours) x Standard Overhard rate per hour

= [(2hrs x5100 units) -8000 hours) x K0.30 /hr

=(10200 hours - 8000 hours) x K0.30 /hr

=660 Favourable

(iv) Variable Overhaed Expenditure Variance = (Standard Overhard rate per hour - Actual Overhard rate per hour) x Actual Hours

=(K0.30 /hr - K2600/8000 hours) x 8000 hours

=(K0.30/hr - 0.325 hr) x 8000 hours

=200 Unfavourable

(v) idle time Variance = (Actual Operating Hours - Actual Operating Hours paid) x Standard Direct wage rate per hour

=(8000 hours - 8500 hours) x K8

= 4000 Unfavourable

(vi) Labour Efficiency Variance = (Standard Labour Hours- Actual Labour Hours) x Standard labour hours per unit

= (10200 hours - 8500 hours) x K8

= 13600 Favouable

(vii) Labour rate variance = (Standard labour rate per hour - Actual labour rate per hour) x Actual Hours

=(K8 - K67800/8500 hours) x 8500 hours

=(K8 -K7.98) x 8500 hours

=170 Favourable

(viii) Material Usage Variance =(Standard Material Usage - Actual Material Usage) x Standard Material per unit

=[(0.5 Kgs x 5100 units) - 2300 Kgs) x K4

=(2550 -2300)kgs x K4

=1000 Favourable

(ix) Material Price Variance = (Standard Mateial per unit - Actual Material per Unit) x Actual Material Usage

=(K4 - K9800/ 2300 Kgs) x 2300 Kgs

=(K4 -K4.26) x 2300 Kgs

=598 Unfavouarble

b.) Income Statement

Sales
Sales Price variance	4850 Favourable
Sales Volume variance	3350 Unfavourable	1500 Favourable
Less: Cost of Goods Sols
Material Price Variance	598 Unfavourable
Material Usage Variance	1000 Favourable	402 Favourable
Labour rate variance	170 Favourable
Labour Efficiency Variance	13600 Favourable	13770 Favorable
Variable Overhead Expenditure Variance	200 Unfavourable
Labour Efficiency Variance	660 Favourable	460 Favourable
Contribution		13132 unfavourable