Question

QUESTION 2 Dasebre Ltd produces and sells one product with the brand name Sobolo. The standard cost for one unit being as follows: GHS 200 30 30 Direct material A-10 kilograms at GHS20 per kg Direct material B - 5 litres at GHS per litre Direct wages - 5 hours at GHS6 per hour Variable production overhead Total standard cost 50 310 The variable production Overheads is incurred in direct proportion to the direct labour hours worked. The budgeted sales volume for the month of May was 900 units at Standard price of GHS350 Actual results for the month of May are as follows: Production and Sales 800 units Material A 7,800 kg used, costing GHS 159,900 Material B 4,300 litres used, costing GHS 23,650 Direct wages 4,200 hours worked for GHS 24,150 Variable production overhead GHS 46,200 Sales proceeds GHS320,000 The Managing Director of Dasebre Ltd does not understand why there are differences between the standard and the actual costs and has tasked you as a Management consultant to undertake a variance analysis to investigate the differences recorded for the year under review. Note: Computations are required to support your analysis Required: Write a report to the Managing Director, highlighting all the possible variances in Material, Labour, Variable Overheads and Sales and their possible causes. (18 marks)

Answer 1

А B с D 1 2 3 Actual DATA for 800 units Quantit Rate Actual Cost y (AQ) (AR) 4 Direct Material A 7800 $ 20.50 $1,59,900.00 5 Direct Material B 4300 $ 5.50 $ 23,650.00 6 Direct labor 4200 $ 5.75 $ 24,150.00 7 Variable Overhead 4200 $ 11.00 $ 46,200.00 8 9 Standard DATA for 800 units Quantit Rate Standard 10 y (SQ) (SR) Cost 11 BI A x B) 12 Direct Material A 8000 $ 20.00 $1,60,000.00 13 Direct Material B 4000 $ 6.00 $ 24,000.00 14 Direct labor 4000 $ 6.00 $ 24,000.00 15 Variable Overhead 4000 $ 10.00 $ 40,000.00 Al

A B с D 1 Actual DATA for 800 units N Quantity (AQ) Rate (AR) Actual Cost 3 =D4/B4 =D5/B5 =D6/B6 =D7/B7 159900 23650 24150 46200 800 units 4 Direct Material A 7800 5 Direct Material B 4300 6 Direct labor 4200 7 Variable Overhead 4200 8 9 Standard DATA for Quantity (SQ) 10 11 CAJ 12 Direct Material A =10*800 13 Direct Material B =5*800 14 Direct labor =5*800 15 Variable Overhead =5*800 Rate (SR) Standard Cost [B] 20 6 6 =50/5 [ AB] =B12*C12 =B13*C13 =B14*C14 =B15*C15

1. Material Price Variance= (Standard Price-Actual Price)*Actual Quantity of Material used

A=(20-20.5)*7800= 3900 U

B=(6-5.5)*4300= 2150 F

Total Material Price Variance = -3900+2150 = 1750 U

2.Material Quantity Usage Variance=( Standard usage of materials for Actual Production-Actual Quantity of Materials used)* Standard price of the material

A= (8000-7800)*20 = 4000 F

B= (4000-4300)*6 = 1800 U

Total Material Quantity Variance = 4000-1800 = 2200 F

3.Labour Rate Variance=(Standard Cost -Actual cost) * actual hours

=(6-5.75)*4200 = 1050 F

4.Labour Efficiency Variance=Standard Cost * (standard time taken to produce the actual output - Actual time taken)

=( 4000-4200) * 6 = 1200 U

5.Variable overhead rate variance = (standard rate-Actual Rate) * Actual Hours

($ 10- $ 11) X 4200 = 4200 U

6.Variable overhead efficieny variance = (standard hours-Actual hours) * Standard Rate

(4000 - 4200 ) * 10 = 2000 U

7.Sales Price Variance = (actual Price - Standard Price) * Actual Sales

= ( 320000/800 - 350) * 800 = 40,000 F

8.Sales Quantity Variance = ( Actual Qty - Standard Qty) * Standard Price

=(800 - 900) * 350 = 35000 U

Unfavorable Material Price variance may be cause due to high price paid for less quantity of materials purchased.

Favourable Material Usage Variance may be due to less wastages of material as compared to expected.

Favourable Labor Rate Variance may be due to labor pocured at low rate as compared to expected.

Unfavourable Labor efficieny Variance may be due to more time taken by labors in production as compared to expected.