Task 1: Standard Costing & Variance Analysis

Kita Ltd, produces a single product in one of its factory. For control and measurement 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) RM140

Materials:

Material XX 6 kilos per unit at RM12.25 per kilo

Material YY 3 kilos per unit at RM3.20 per kilo

Manpower 4.5 hours per unit at RM8.40 per hour

Fixed overheads at RM86,400 per month are not absorbed into the product costs. The actual data for the month of May are as follows:

Produced 15,400 units, which were sold at RM138.25 each.

Materials :Used 98,560 kilos of material XX at a total cost of RM1,256,640.

:Used 42,350 kilos of material YY at a total cost of RM132,979.

Labour :Paid an actual rate of RM8.65 per hour to the labour force. The total amount paid out amounted to RM612,766.

Overheads (all fixed) RM96,840.

Required:

Prepare a budgeted income statement and an actual income statement for the month of May based on the marginal costing system.

Calculate the following variances and prepare a statement reconciling the actual with the budgeted profit or loss figure: -

Material price and usage variances;

Labour rate and efficiency variances;

Fixed overhead expenditure variance; and

Sales margin price and volume variances.

Referring to part (b), how would you analyse the possible reasons for the variances?