Advanced: Relevant cost approach to variance analysis Blue Ltd manufactures a single product, the stan¬ dards of which are as follows:

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 following 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.
(iv) The opportunity cost method assuming there are no scarce inputs.

(b) Briefly explain and comment on any differ¬ ences between your answers to

(a) (i) to

(a) (iv) above.

Transcribed Image Text:

() () Standards per unit: Standard selling price 268 Less Standard cost: Materials (16 units at 4) 64 Labour (4 hours at 3) *Overheads (4 hours at 24) Standard profit 12 96 [8 172 96