Company XYZ uses a standard costing to evaluate operational performance against budget. The following budget and...
Company XYZ uses a standard costing to evaluate operational performance against budget.
The following budget and actual information is presented to you as the accountant:
Budget
Production and sales: 50 000 units
Material usage per unit: 7kg
Price per kg: R10
Labour minutes per unit: 15 min
Total direct labour cost: R2 000 000
Variable costs: R1 500 000
Actual
Production and sales: 47 500 units
Material used: 356 250kg
Cost of material: R3 241 875
Labour minutes: 703 000 min
Total direct labour cost: R1 900 000
Variable costs: R1 400 000
REQUIRED:
Identify and apply an appropriate variance analysis to evaluate direct material, direct labour and variable overheads (where applicable, express answers to one decimal place). Please provide possible reasons for the discrepancies.
Homework Answers
| Budget | Standard quantity (units) | 50000.0 |
| Material usage per unit (kg) | 7.0 | |
| Standard price per kg | 10.0 | |
| Standard quantity (in kg) | 350000.0 | |
| Actual | Production and sales (units) | 47500.0 |
| Material used: | 356250.0 | |
| Cost of material: | 3241875.0 | |
| Material Usage Variance: | Computation | |
| Standard quantity (in kg) *Standard price per kg =(350000*10) | 3500000.0 | |
| Actual quantity used (in kg)*Standard price per kg =(356250*10) | 3562500.0 | |
| Variance | -62500.0 | |
| Reason | Variance is adverse as the actual quantity consumed is more than the budgeted quantity |
| Material Price Variance: | Computation |
| Actual quantity used (in kg)*Standard price per kg =(356250*10) | 3562500.0 |
| Actual Cost of material: | 3241875.0 |
| Variance | 320625.0 |
| Reason | Variance is favourable since the actual price is less than the budgeted price for actual quantity. |
| Budget | Total direct labour cost | 2000000.0 |
| Actual | Total direct labour cost | 1900000.0 |
| Labour Cost Variance | 100000.0 | |
| Reason | Variance is favourable since the actual cost is less than the budgeted cost of labour. | |
| Budget | Variable costs: | 1500000.0 |
| Actual | Variable costs: | 1400000.0 |
| Variable Cost Variance | 100000.0 | |
| Reason | Variance is favourable since the actual cost is less than the budgeted cost for variable overhead. | |
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