Question 2:

The Carat Plc a medium sized company, produces a single product in its one overseas factory. For control purposes, a standard costing system was recently introduced and is now in operation.

The standards set for the month of May were as follows:

Production and sales 16,000 units

Selling price (per unit) 140

Materials

Material 007 6 kilo per unit at 12.25 per kilo

Material XL90 3 kilo per unit at 3.20 per kilo

Labour

4.5 hours per unit at 8.40 per hour

Overheads (all fixed)

86,400 per month. They are not absorbed into the product costs.

The actual data for the month of May, is as follows.

Produced 15,400 units which were sold at 138.25 each.

Materials

Used 98,560 kilos of material 007 at the total cost of 1,256,640 and used 42,350 kilos of materials XL90 at the total cost of 132,979.

Labour

Paid an actual rate of 8.65 per hour to the labour force. The total amount paid out, amounted to 612,766.

Overheads (all fixed)

96,840

Required:

1. Prepare a standard costing profit statement, and a profit statement based on actual figures for the month of May. (8 Marks)

2. Prepare a statement of the variances which reconciles the actual with the standard profit or loss figure. (Mix and yield variances are not required). (12 Marks)

3. Briefly explain the possible reasons for inter-relationships between material variances and labour variances. (5 Marks)

Total 25 Marks

END OF QUESTION 2