Intermediate: Variance analysis and reconciliation of standard and actual cost (a) Discuss in general the ways in
Question:
Intermediate: Variance analysis and reconciliation of standard and actual cost
(a) Discuss in general the ways in which variance analysis helps management to control a business.
(Note there is no need to refer to specific variances.)
(10 marks)
(b) NC Limited uses flexible budgets and standard costing for its single product P which it makes and sells.
Three kilogrammes of material, having a standard cost of £4.40 per kilogram, are required for each unit of P. Actual material purchased and used in April cost £336000 with the actual purchase price being £4.20 per kilogramme. Each unit of P requires thirty minutes of direct labour time and the standard wages rate per hour is £5. The actual wages rate in April was £5.40 per hour. Sufficient direct labour time was utilised to produce 28 000 units of P although actual production 1n April was 25 000 un~s.
The company has a normal operating capac~ of 15 000 hours per month and flexible overhead budgets are:
Actual overhead incurred in April was £430000 of which £270 000 was fixed You are required to (i) calculate the appropriate variances for material, labour and overhead;
(ii) show the variances 1n a statement suitable for presentation to management. reconciling the standard cost with the actual cost of production.
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