Question

Question 3 (6 marks) Mendel Allison Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product follow: Material: 10 kilograms @ R4.50 per kilogram R45.00 Labour: 6 hours @ R8.50 per hour R51.00 The following operating data were taken from the records for November: 1. Units completed: 5,800 units 2. Budgeted output: 6,000 units 3. Materials purchased: 60,000 kilograms 4. Total actual labour costs: R306,600 5. Actual hours of labour: 36,500 hours 6. Material usage variance: R2,250 U 7. Total material variance: R450 U Compute the following: A. Labour rate variance (1½) B. Labour efficiency variance (1½) C. Actual kilograms of material used in the production process (1½) D. Actual cost paid per kilogram of material (1½)

Answer 1

Solution

A. Labor rate variance:

=Actual Hours×(Actual cost - Standard cost)

=36500 hrs ×($8.40/hr* - $8.50/ hr)

=$3,650 F

*$306600 labor cost/36500 hours worked=$8.40/hr

B. Labor efficiency variance:

=standard cost×(Actual hours - Standard hours)

=$8.50/hr × (36500 hrs - 34800 hrs*)

=$14,450 U

C.

Material usage variance= Standard cost× ( actual quantity - standard quantity)

$2250 =$4.50/kg × ( Actual quantity - 58000 kg*)

500 kg= Actual quantity -58000 kg

Actual quantity=58500 kg

*5800 units × 10 kg per unit=58000 kg

D.

Total material variance= material usage variance+ material price variance

450=2250+ material price variance

Material price variance=$1800 F

Material price variance= (Actual cost - Standard cost) × Actual quantity purchased

-1800=(Actual cost - $4.50/ kg) × 60000 kg

- $0.03 (rounded) = Actual cost - $4.50/ kg

Actual cost=$4.47 per kg