Question 2 (20 marks)

Elso Ltd (Elso) manufactures large-scale solvents for factories and household cleaning. The company uses standard costing system as a way of monitoring its cost. The following information is available for Elso for the month of July 2022:

Budgeted Sales and production volume 600 barrels

Standard selling price per barrel N$1 750

Standard variable cost per barrel N$855

Actual Sales and production volume 620 barrels

Actual selling price per barrel N$1 690

Actual variable cost per barrel N$863

Additional information:

Standard cost card for one barrel of solvent

Direct materials 34 litres @ N$15 per litre

Direct labour 15 hours @ N$12,50 per hour

Variable overheads 15 hours @ N$10,50 per hour

NB: Overheads are absorbed on the basis of direct labour hours.

Actual cost and usage information:

Total usage Total cost (N$)

Direct materials 20 410 litres N$321 500

Direct labour 9 420 hours N$117 800

Variable overheads ? N$95 600

REQUIRED:

Calculate the following variances and indicate whether the variance obtained is favourable or unfavourable:

2.1 Material price variance [3]

2.2 Material usage variance [3]

2.3 Labour rate variance [3]

2.4 Labour efficiency variance [3]

2.5 Variable overheads expenditure variance [3]

2.6 Variable overheads efficiency variance [3]

2.7 Explain the possible causes of the type of variance obtained in 2.1 and 2.3?

TOTAL MARKS 20