Question

sol th Question 4 (10 marks) The following is the standard cost card for X Company's only product: Direct materials, 4 metres at $4.00 Direct labour, 1.5 hours at $10.00 Variable overhead, 1.5 hours at $3.00 Fixed overhead, 1.5 hours at $7.00 Standard cost per unit $16.00 $15.00 $4.50 $10.50 $46.00 The company manufactured and sold 18 000 units of product during the year. A total of 70,200 metres of material was purchased durine the vear at cost of $4.20 per metre. All of this material was used manufacture the 18,000 units. The company records showed no begi 8,000 units. The company records showed no beginning or ending Inventories for the year. The company worked 29,250 direct labour hours during the year at a cost of $9.75 per hour. Overhead cost is applied to products on the basis of direct labour hours. The denominator activity level (direct labour hours) was 22,500 hours, Budgeted fixed overhead costs as shown on the flexible budget were $157,500, while actual fixed overhead costs were $156,000. Actual variable overhead costs were $90,000 Required: a) Compute the direct materials price and quantity variances for the year. b) Compute the direct labour rate and efficiency variances for the year. c) Compute the variable overhead spending and efficiency variances for the year. d) Compute the fixed overhead budget and volume variances for the year.

Answer 1

Question - 4 Given that Standard cost card of product: SQ (standard Quantity) - 4meters SP (standard Price) = $4/meter SH (standard tab Houss) - 1.5 hours per unit SR (Standard lob rate) = $10/ hour SR (standard vou rate) = 43 per hour.

Given that Actual Output (AQ) = 18000 units Actual Quantity (Material = 70,200 metres Actual Price Material (Ap) = 4.2 /meter Actual labours Hours = 29,250 hours Actual denimi nates Houss=22500 hours Actual fixed Overhead = 1,56000 & Actual standard fixed - 1157,500 i allowed = 1157,500 & overhead

calculation of Variances! Material Variance: Material Roice Variance = (standard Price -Actual Price) Actual Quantity =(4-4-2) x 70,200 = -14040 Adverse Material Quantity varimce = (standard Quantity - Actua) Quantity Slandard price -(18,000 (U) - 70,200)* $4 = 7200 favourable Material cost Variance ndard cost - Actual cost = 18000 (4) (4) - 70,200 (4.2). = 6840 Adverse

t. Direct labour vari labour Variances. Direct labour Rate variance actual) Actual Rate / x Quantity - Standare Rate - (10-9.75) x 29250 - 731.5 Favourable Direct labour Efficiency van I Standard - Actual & Standard Quantity Quantity) Rate = (18000 (1:) - 29250) x 10 = 22500 Adverse c. Variable overhead Variances Varlable Overhead spending Variamu i Standard actual) Actual I hours - Rate) & Hours -(3-4)*22500 = 22 500 Adverse Varstable overhead efficier Varlance Rat standard Rate - standard Actual I hours - Hours * (18000 (104) - 22500)3 % 13500 favourable

fixed overhead Variance Fixed Overhead budget variance - Actual fixed Rudgeted Overhead – fixed variance = 156000 - 1,57,500 = 1500 favourable fixed overhead sto volume variance standard Budgeted Fixed - cud overshead. Overhead fixed Overhead Standard (fixed) Denominato fixed) PHours Rate - Hours (Rate | Allowed = 18000(1,5) (7) - 22500 (7) = 31500 farourable
total variance is calculated as follows

=Standard cost- actual costs incurred

=18000(46)-826027.5

=1972.5 Adverse

Total of all the variances calculated is also 1972.5 adverse

Hence verified.