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Cost elements are the cost of resources consumed by a business activity during the manufacturing or production of goods and services in Activity-Based Costing (ABC).
Cost elements are the cost of resources consumed by a business activity during the manufacturing or production of goods and services in Activity-Based Costing (ABC). It is important that cost elements consumed are periodically measured against standards to evaluate the efficiency of operations. XYZ Ltd is producing an auto-mobile component CP-0851 which requires the following standard quantities of raw materials, labour hours, labour rates and costs of of the cost elements per unit of CP-051 produced: 3.3 direct labour hours @ N$12 per hour. 3.3 Variable overhead hours @ N$2.50 per hour 2 kg of direct material @ N$ 13 per kg The actual quantities and costs of cost elements used in the month were as follows: Production level = 12,000 units of CP-051 A total 40,200 hours of direct labour were used @ a total cost of N$506.520 Variable overheads amounted to a total N$ 107,250 A total of 26,400 kg of direct material which cost N$336,600 NB: All materials bought were used during the period under review. Required: Calculate the following and give a remark on whether it is favourable or not: a. Material price variance (MPV). b. Material usage variance (MUV). c. Labour efficiency variance (LEV). d. Variable overhead expenditure and efficiency variance (VOHEV. (4 x 10 marks each)
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