A company produces a product which has a standard variable production cost of $8 per unit made up as
follows:
$ Per Unit
Direct material $4.60 (2kg X $2.30 per kg)
Direct labour $2.10 (0.7 hours x $3.00 per hour)
Variable overhead $1.3
Fixed manufacturing costs are treated as period costs. The following information is available for the period just ended,
Variable manufacturing cost of sales (at standard cost) $263,520
Opening stock of finished goods (at standard cost) $120,800
Closing stock of finished goods (at standard cost) $146,080
Direct material price variance $2,571 U
Raw materials used in manufacture (at actual cost) $170,310
Direct labour rate variance $4,760 U
Direct labour efficiency variance $3,240 F
Required:
(a) Determine for the period ended.
(i) The total actual direct labour cost, and
(ii) The actual cost per kg of raw material used.
(b) Outline the possible causes of the raw materials variances
Actual direct labor cost | ||
Variable manufacturing cost of sales | $263,520 | |
Add: Ending stock of finished goods (at standard cost) | 146080 | |
Less:Opening stock of finished goods (at standard cost) | -120800 | |
cost of goods manufactured | $288,800 | |
cost of goods manufactured | $288,800 | |
No of units produced*(4.6+2.1+1.3)=288800 | ||
Std No of units produced=288800/(4.6+2.1+1.3) | 36100 | |
Standard cost of direct labor | ||
36100*2.1 | 75810 | |
Add: Direct labour rate variance | 4760 | |
Less: Direct labour efficiency variance | -3240 | |
Actual direct labor cost | 77330 | answer 1 |
ans 2 | ||
Actual cost per kg of raw material used. | ||
Direct material price variance | $2,571 | |
(AQ*AR)-(AQ*Sr) | ||
AQ*SR=170310-2571 | 167739 | |
Aq*2.3=167739 | ||
AQ=167739/2.3 | 72930 | |
72930*AR=170310 | ||
AR=170310/72930 | 2.34 | |
Actual rate=$2.34 | ||
ans 3 | ||
Causes of raw material variance; | ||
1) Actual cost of raw material is more or less than budgeted. So when the market price of the material increases or decreases than there could be unfavorable or favorable variance respectively | ||
2) actual quantity used can be less or more than standard quantity allowed. It may be due to inefficient labor in case of unfavorable variance and more skilled labor in case of favorable variance | ||
3) Substandard quality used in production than was planned than there is unfavorable variance | ||
If any doubt please comment |
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