Question

Question 3

Wasabi Pte Ltd makes separate journal entries for all cost accounting-related activities. It uses a standard costing system for all manufacturing items. For the month of April 2016, the following activities have taken place:

Actual Direct Manufacturing Materials Purchased	$300,000
Direct Manufacturing Materials Used At Standard Price	250,000
Direct Materials Price Variance	10,000	Unfavourable
Direct Materials Efficiency Variance	15,000	Favourable
Direct Manufacturing Labour Rate Variance	6,000	Favourable
Direct Manufacturing Labour Efficiency Variance	4,000	Unfavourable
Direct Manufacturing Labour Payable	172,000

The estimated fixed overhead costs for 2016 is $324,000. The company uses direct labour hours for fixed overhead allocation and anticipates 10,800 hours during the year for 540,000 units. An equal number of units are budgeted for each month. During April 2016, 48,000 units were produced and $28,000 was spent on fixed overhead.

Required:

1. Describe how the above is tracked through the accounting system by posting the necessary journal entries to record all direct cost variances for the month.

(10 marks)

2. Help the manager interpret the variances by providing two (2) possible causes for

(i) the labour rate variance; and (ii) the labour efficiency variance. Explain how the two (2) variances are related.

(16 marks)

3. Calculate all fixed overhead variances for April 2016.

(6 marks)

4. Explain why the materials price variance is usually computed at the point of purchase rather than when materials are used during the manufacturing process.

(4 marks)

Answer 1

- page 1 Answare Wasabi pte Ltd makes seprate Journal entries for all cost accounting related activities using Standard Costing system for all mame facturing item For the month af April 2016 The following actuites have taken place. => purchase account debtor $ 300,000 TO Cash account $300,000 → Metivial purchase variance $10,000 TO Cash account $10,000 [being the adetional ament was paid to acquire metrey labor price variance - $6000 TO Cash [being the labar account $$ 6000 aditional amount paid the

- page 2 Here labor payment of money is out standing amount of $170,000, which is Corrent Liability [where the firm has to pay, but till how they havent paid