Ford Company Ltd adopted a standard costing system several years ago. The standa
ID: 2581860 • Letter: F
Question
Ford Company Ltd adopted a standard costing system several years ago. The standard costs of its single product are as follows:
Direct material
8 kilograms@ R4,00 per kilogram
R32,00
Direct labour
6 hours@ R7,00 per hour
R42,00
The following operating information was taken from the records for November:
Work in process
inventory on November 1
None units
Work in process inventory on
November 30
800 units (75 per cent complete as to labour; material is issued at the beginning of processing)
Units completed
6000 units
Purchase of materials
50 000 kg for R249 250
Total actual labour costs
36 500 hours R300 760
Direct material quantity variance
R 1 500 unfavourable
Required:
4.1 Prepare a schedule of equivalent units and standard quantities allowed for materials and labour.
4.2. Calculate the following amounts. Indicate whether each variance is favourable or
unfavourable.
(a) Direct labour rate variance for November.
(b) Direct labour efficiency variance for November.
(c) Actual kilograms of material used in the production process during November.
(d) Actual price paid per kilogram of material in November.
(e) Total amount of direct material and direct labour cost transferred to finished goods inventory during November.
(f) The total amount of direct material and direct labour cost in the ending balance of
work in process inventory at the end of November.
Direct material
8 kilograms@ R4,00 per kilogram
R32,00
Direct labour
6 hours@ R7,00 per hour
R42,00
Explanation / Answer
Solution 1 - Calculation of Equivalent units and Standard quantities allowed for material and labour
Solution 2 - Calculation of Variances
Part 1 - Direct labour rate variance
Note - Standard rate per hour = $300760/36500 = $8.24
(Standard rate per hour - Actual rate per hour)*Actual hours
($7 - $8.24) * 36500 hours = $45260 Unfavourable
Part 2 - Direct labour efficiency variance
(Standard hours - Actual hours) * Standard rate per hour
(39600 - 36500) * $7 = $21700 Favourable
Part 3 - Calculation of Actual kilagram used in November production process
Let Actual quantity = 'x'
Material quantity variance = (Standard quantity - Actual quantity) * Standars price per kg
1500 U = (54400 - x) * $4
1500 U = $217600 - $4x
$4x = $219100
Actual Kilogram = $219100/$4 = 54775 kilograms
Part 4 - Actual price paid per kilogram of material in november
Actual price paid = $249250/50000 = $4.985 per kilogram
Part 5 - Total amount of Direct material and Direct labour transferred to Inventory
Total cost of direct material and direct labour transferred
Part 6 - Total amount of direct material and labour in the ending balance of work in process inventory
Particulars Direct Material Direct Labour Units completed 6000 6000 Equivalent units in work in process Direct material (800 * 100%) 800 Direct Labour (800 * 75%) 600 Total Equivalent units 6800 6600 Standard quantities required per unit 8 kilogram 6 hours Total Standard quantities allowed 54400 kilograms 39600 hours