(a) You are required to prepare an operating statement for the year, using a standard absorption costing system. Calculations should proceed according to the following headings suffixing A for Adverse and F for Favourable where appropriate. Resulting quantities required for the statement are then entered in the

Operating Statement for the Year sheet shown on page 6. (All working must be shown.) (Budgeted) Costs

Unit cost Direct labour

Direct materials

Variable overhead

Fixed overhead

Admin. overhead Total

Selling price

Standard profit (per unit) Budgeted profit Sales price variance Sales quantity variance (These last three entries are added to the Operating Statement for the Year on the final sheet of the calculations.)

Cost Variances Labour Variances Standard hours = Standard cost/hour = Rate variance = Standard time = Actual time = Time variance = Efficiency variance = (Add rate and efficiency variances to Operating Statement for the Year on the final sheet of the calculations.) Material Variances Material price = Material usage standard = actual = Material usage variance = (Add price and usage variances to Operating Statement for the Year on the final sheet of the calculations.)

Variable overheads Standard cost = Actual cost = Expenditure variance = Efficiency variance = (Add expenditure and efficiency variances to Operating Statement for the Year on the final sheet of the calculations.) Fixed overheads Expenditure variance = Volume variance = (Add these variances to Operating Statement for the Year on the final sheet of the calculations.) Admin overhead (treat as fixed) Expenditure variance = Volume variance = (Add these variances to Operating Statement for the Year on the final sheet of the calculations.)

Operating Statement for the Year 000 000 Budgeted Profit Sales variance price quantity Cost variances Labour rate efficiency Material price usage Variable expenditure efficiency Fixed expenditure volume Admin expenditure volume Actual Profit

(b) Give reasons/explanations why the variances in (a) above have occurred for the following: (i) material price (ii) labour efficiency (iii) fixed overhead expenditure.

1. Anderson Lk. manufacture gearboxes for use in cars. At the start of the yeur, the management of Anderson Lid. estimated that is costs would be: Sofa valec Direct latour Variable prochaction o Fiscapus r cal This was based on the following: 80 employees 2000 hours worked by each employee 400 gearboxes manufactured in the year as lodgeted production 20 unit selling price. You have recently been employed by the company to establish a standard costing system. At the end of the year you were able to extract the following information: labour costs 4.40hour 32 000 units sold 210unit selling price 1000 hours were worked variable production overheads were 610 000 fixed production overheads were 810 000 administration costs were 1350 000 w material prices were 10higher than expected total expenditure on raw material was 3.696 M there were no opening or closing stocks of raw materials