QUESTION Standard Costing& Variance Analysis Kita Ltd, produces a single product
ID: 2540428 • Letter: Q
Question
QUESTION Standard Costing& Variance Analysis Kita Ltd, produces a single product in one of its factory. For control and measurement purposes, a standard costing system was recently introduced and is now in operation. The standards set for the month of May were as follows: Production and sales Selling price (per unit) Materials Material XX Material YY Manpower 16,000 units RM140 6 kilos per unit at RM12.25 per kilo 3 kilos per unit at RM3.20 per kildo 4.5 hours per unit at RM8.40 per hour Fixed overheads at RM86,400 per month are not absorbed into the product costs. The actual data for the month of May are as follows: . Produced 15,400 units, which were sold at RM138.25 each. Materials :Used 98,560 kilos of material XX at a total cost of RM1,256,640. :Used 42,350 kilos of material YY at a total cost of RM132,979. . Labour Paid an actual rate of RM8.65 per hour to the labour force. The total amount paid out amounted to RM612,766. .Overheads (all fixed) RM96,840. Required: a. Prepare a budgeted income statement and an actual income statement for the month of May based on the marginal costing system. (4.5) b. Calculate the following variances and prepare a statement reconciling the actual with the budgeted profit or loss figure:- (i) Material price and usage variances; (ii) Labour rate and efficiency variances; (ii) Fixed overhead expenditure variance; and (iv) Sales margin price and volume variances. (6.5) c. Referring to part (b), how would you analyse the possible reasons for the variances? (Total : 15)Explanation / Answer
a) Budgeted Income statement: Sales units 16000 Sales 2240000 Less: Expenses: Material 1329600 Labor 604800 Overhead 86400 Total costs 2020800 NOI 219200 Income statement- marginal : sales unit 15400 Sales 2129050 Less: Expenses: Material 1389619 Labor 612766 Overhead 96840 Total costs 2099225 NOI 29825 b. i) Material price variance = (12.75 - 12.25)98560 = 49280(U) Material price variance = (3.14 - 3.20)42350 = 2541(F) Material usage variance = (15400*6 - 98560)*12.25 = 75460(U) Material usage variance = (15400*3 - 42350)*3.20 = 12320(F) ii) Labor rate variance = (8.65-8.4)*15400 = 3850(U) Labor efficiency variance = (15400*4.5 - 70840) * 8.4 = 12600 (U) iii) Fixed overhead expenditure variance = 96840 - 86400 = 10440 (U) iv) Sales margin price variance = (138.25 - 140)15400 = 26950 (U) Sales volume variance = (15400 - 16000)140 = 84000 (U) c. The problem lies at: 1) costlier material purchased of XX and its poor utilisation 2) higher labor paid and not efficiently utilised 3) higher overheads are paid 4) low selling price and lower sale.