Question 3 30 Marks

Plastic Manufacturing Company:

Plastic Manufacturing Company manufactures Plastic Cartons. The Competition in the plastic industry is increasing. The production manager of the company is suggesting using standard costing system. He explains Standard costing is a control technique where actual and standard costs and revenues are compared to obtain the variances and are used as an important tool to improve the performance

The company has the following standard cost card to manufacture each plastic carton.

Direct material 2.5 Kg. at OMR 5 per kg. 12.5

Direct Labor 3 hours at OMR 4 per hour 12

Fixed Overheads - 3 hours at OMR 2 per hour 6

Total standard cost 30.5

Selling price 45.5

Standard profit 16

Budgeted sales(units) 900

Actual cost and revenue are as follows:

Actual production for the period was 830 units

Direct material 2200 kg costing OMR 10500

Direct labour 2300 hours costing OMR 9500

Actual sales are 750 Units and sold @ OMR 55

1. Calculate:

1. Material Price Variance
2. Material Usage variance
3. Labor Rate Variance
4. Labor Efficiency Variance
5. Sales price variance
6. Sales volume Profit variance 18 Marks

2. Explain possible reasons and interrelationship for labou , material and sales variances calculated in part (a) above. 6 Marks

3. As suggested by Production manager standard costing(Variance analysis) is a tool for control. Evaluate the Advantages of Variance Analysis for the organization. 6 Marks

Note - The academic reference is required for part (C) of the above question