QUESTION THREE [25] ACCOUNTING AND FINANCE

Piky Enterprises makes and sells a single product. The company operates a standard costing system.

Details of the budgeted and actual data are as follows:

Budgeted data

Standard production costs per unit:

Direct materials 4 kg at a cost of R40 per unit

Direct labour 1 hour at a cost of R10 per hour

Variable overheads 1 hour at R5 per direct labour hour

Fixed production overheads R360 000

Standard selling price R200 per unit

Production and sales 10 000 units

Actual data

Direct materials 41 500 kg @ R11 per kg

Direct labour 9 500 hours @ R12 per hour

Variable overheads R49 400

Fixed production overheads R378 000

Selling price R210

Production and sales 9 000 units

Required:

3.1 Use the information provided above to calculate the following variances and in each case state whether the variance is favourable or unfavourable.

3.1.1 Materials issue price variance (3)

3.1.2 Materials quantity variance (3)

3.1.3 Total labour variance (without calculating the labour rate and labour efficiency variance) (3)

3.1.4 Variable overheads efficiency variance (3)

3.1.5 Variable overheads expenditure variance (3)

3.1.6 Fixed overheads volume variance (3)

3.1.7 Sales price variance (3)

3.2. In each of the following cases, provide two possible reasons for a favourable variance:

3.2.1 Labour efficiency variance (2)

3.2.2 Sales quantity variance. (2)