Advanced : Relevant cost approach to variance analysis Blue ltd manufactures a single product, the standards of which are as follows:

"Total overhead costs are allocated on the basis of budgeted d1rect labour hours. The following information relates to last month's actiVIties :

The actual selling price was identical to the budgeted selling price and there was no opening or closing stocks during the period.

(a) You are required to calculate the variances and reconcile the budgeted and actual profit for each of the followmg methods.
(i) The traditional method.
(ii) The opportunity cost method assuming materials are the limiting factor and materials are restricted to 9600 units for the period.
(iii) The opportunity cost method assuming labour hours are the limiting factor and labour hours are restricted to 2400 hours for the period.
(lv) The opportunity cost method assuming there are no scarce inputs.

(b) Br iefly explain and comment on any differences between your answers to

(a) (i) to

(a) (iv) above.

Transcribed Image Text:

Standards per unit: Standard selling price Less Standard cost: Materials (16 units at 4) Labour (4 hours at 3) "Overheads (4 hours at 24) Standard profit () () 268 64 28 12 96 172 96