Tonga Ltd manufactures a single product whose cost structure is given below:

Sh

Sh

Direct materials:

Material A (2 kg @ Sh 25 per kg)

50

Material B (3 litres @ Sh 75 per litre)

225

275

Direct labour (4 hours @ Sh 30 per hour)

120

Variable overheads

80

Fixed overheads

25

500

The variable and fixed overheads are absorbed on the basis of the direct labour hours.

During the year ended 31 October 2000, the company produced and sold 40,000 units and incurred the following costs:

Sh

Sh

Direct materials:

Material A (78,000 Kg)

205,000

Material B (121,000 Kg)

6,800,000

7,005,000

Direct labour (156,000 hours)

4,900,000

Variable overheads

3,000,000

Fixed overheads

900,000

Total cost

15,805,000

Required:

a)Material mix and yield variances.(8 marks)

b)Variable overhead expenditure and efficiency variances.(8 marks)

c)Standard cost card for 40,000 units.(4 ma

QUESTION TWO

Daina Limited manufactures a unique hair oil branded Dainaline.The product undergoes two manufacturing processes before emerging as a complete product.The following information relates to production undertaken during the month of September 2003.

Process

1

2

Input

Added Costs:

Material

Labour

Overhead

Normal loss

Scrap value

Output:

To process 2:200,000 litres

250,000 litres @ Sh. 62.50 per litre

5,750,000

4,812,500

2,062,500

10% of input

Sh. 18.75 per litre

To finished goods

To W.I.P C/f

- Previous process costs

- Added material

- Labour

- Overhead

4,606,250

3,806,250

2,640,000

5% of input

Sh. 42.50 per litre

162,500 litres

25,000 litres

100%

80%

70%

50%

There was no opening work-in-progress in either of the two processes.Losses in process 2 had the following degree of completion: previous process costs 100%, added material 70%, labour 50% and overheads 50%.

Required:

(a)Process accounts for both processes for the month of September 2003 (show all your computations).(16 marks)

(b)Explain the implication of the following to the costs of equivalent units:

(i)Normal loss(2 marks)

(ii)Scrap value(2 marks)

(Total: 20 marks)