Question
A manufacturing company makes a specialised epoxy adhesive and had the following STANDARD PRIME COSTS and STANDARD PRIME QUANTITIES budgeted to produce one batch (which
A manufacturing company makes a specialised epoxy adhesive and had the following STANDARD PRIME COSTS and STANDARD PRIME QUANTITIES budgeted to produce one batch (which is their basic unit) of their main product:
Direct Materials: 200 litres at $45.00 per litre
Direct Labour: 12 hours at $48.00 per labour hour Quantity produced: 500 Batches (Units) of the product. ACTUAL COSTS AND QUANTITIES FOR THE PERIOD:
Direct materialpurchased: 150,000 litres at a TOTAL cost of $6,855,000
Direct materialused: 101,500 litres used in production (all from the material purchased)
Direct labour: 5,790 hours at a TOTAL cost of $283,710
Required:
Standard Cost Prime Cost Variances (8 Marks total)
- Use the standard cost variance formulas to compute the four PRIME COST STANDARD COST VARIANCES. Show your results in the spaces shown below and indicate whether each variance is favourable (F) or unfavourable (U).
- Direct material price variance = $
- Direct material quantity variance = $
- Direct labour rate variance = $
- Direct labour efficiency variance = $
Standard Costs Sales Variances
- Standard costing methods are also used to monitor sales performance at this company. One of the adhesiveproducts made for retail saleshad the following sales and volume budget and sales outcomes:
Budgeted average sell price: $24.00 per unit Budgeted sales volume: 1,000,000 units Budgeted contribution margin per unit: $7.20
Actual average sell price per unit: $23.52 per unit Actual sales volume: 1,100,000 units
Required:
Assuming the variable costs were as budgeted, calculate the following sales variances: Note: You must indicate whether each variance is Favourable (F) or Unfavourable (U)
(i) | Sales Price Variance | = | $ |
(ii) | Sales Volume Variance | = | $ |
Please use the blank space below for your calculations:
- Standard costing may be used purely for costing products however it may also be used to control and measure a business units operational performance. For Standard Costing to be most effective it is suggested that businesses use practical standards rather than perfection standards and that relevant managers should participate in setting the standard costs and quantities.
Required:
BRIEFLY explain why using practical standards and participation may lead to a more effective system.
NOTE: 50-100 words ONLY Bullet points are acceptable for this response
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