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One lesson that every company learnt from the impact of COVID-19 is how to best control their costs. This is mostly among companies within the
One lesson that every company learnt from the impact of COVID-19 is how to best control their costs. This is mostly among companies within the manufacturing industries. For example, Company A, which manufactures various products made out of timber has decided to implement a standard costing system. Its products include dining tables, wooden chairs that it supplies to government schools and the likes. The company has been experiencing serious material shortage over the past two years that it has been in existence. As a way of salvaging the company, the Chief Financial Officer decided that let the company use the standard costing system where each month certain production standards are set, and being followed as such. Time left 1:21:37 The company's cost accountant has supplied the following urrution for the month of September 2021: Budgeted standard information: Number of wooden chairs 500 Number of kilograms for timber required per wooden chair 2 kg @ N$ 6/kg Labour hours required per wooden chair 2 hours @ N$12/hour N$8 Variable manufacturing overheard cost per hour Total fixed manufacturing cost per month N$5 000 During the month of September 2021, the company's records revealed that it managed to achieve 95% of its production target, whereby N$7 560 have been spent in the acquisition of timber at 5% more than what was budgeted for. Moreover, 90% of the materials (timber) purchased have been used in achieving the 95% production volume. It's the company's policy to absorb overheads on the basis of direct labour hours. Total monthly labour cost amounted to N$11 800. It was established that employees were paid at an hourly rate of N$12.50 total fixed manufacturing overheads amounted to NS4 500, and variable manufacturing overheard cost amounted to N$7 080 1.3. Variable manufacturing overhead variances: 3 (0) expenditure variance 3 efficiency variance (NB: In each case, indicate whether the variance is favourable or unfavourable, and also provide a possible reason why such type of variance occurred.)
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