Murgatroyd Ltd, which manufactures a single product, uses standard absorption costing.

A summary of the standard product cost is as follows: 

Required

1. Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month and highlights the total variance for each of the three elements of cost. 

2. Last month 24,000 litres of direct material were purchased and used by the company. The standard allows for 2.5 litres of the material, at £6 per litre, to be used in each unit of product. Provide an appropriate breakdown of the total direct materials cost variance included in your statement in 1. 

3. Explain who in the company should be involved in setting: 

a. The standard price; and 

b. The standard quantity for direct materials.

Transcribed Image Text:

£ per unit Direct materials 15 Direct labour Fixed overheads 20 12 Budgeted and actual production for last month were 10 000 units and 9000 units respectively. The actual costs incurred were: Direct materials 138 000 Direct labour 178 000 Fixed overheads 103 000