OBJECTIVE:

To enable learners to use variance analysis for the purpose of benchmarking when evaluating performance and to further control organisational output, efficiency and sustainability.

REQUIREMENT: Standard Costing & Variance Analysis

Question

SinarDedaun Sdn. Bhd. is a manufacturer of premium tea leaf-based in Cameron Highlands. SinarDedaun budgeted 20,000 bottles to be produced per month. The standards below have been established for its variable costs of production.

Premium Tea Leaf Standard cost per unit(RM)

Direct material 24

(6 kgs at RM4 per kg)

Direct labour 7

(1 hour at RM7 per hour)

Variable production overhead 3

(1 direct labour hour at RM3)

TOTAL 34

In September, 18,500 bottles were produced. A total of 113, 500 kgs for the costs of RM442,650 of direct materials were purchased and used. The direct labour costed RM129,940 for a total of 17,800 direct labour hours worked. Actual variable production overhead costs incurred was RM58,800.

Required:

From the foregoing information, compute the following variances and indicate whether they are Favorable (F) or Unfavorable (U). State why each of the variances occurred.

In September, 18,500 bottles were produced. A total of 113, 500 kgs for the costs of RM442,650 of direct materials were purchased and used. The direct labour costed RM129,940 for a total of 17,800 direct labour hours worked. Actual variable production overhead costs incurred was RM58,800.

Required:

From the foregoing information, compute the following variances and indicate whether they are Favorable (F) or Unfavorable (U). State why each of the variances occurred.

(a)Material price variance

(b)Material usage variance

(c)Direct labourrate variance

(d)Direct labour efficiency variance

(e)Variable overhead spending variance

(f)Variable overhead efficiency variance