Standard cost and Variance Analysis

The following standard costs apply in a business that manufactures a single product.

Actual production and costs for one accounting period (when output was 290 units) were as follows:

Required: Calculate:

1. Material usage variance
2. Material price variance
3. Labour efficiency variance
4. Labour rate variance

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Material Usage Variance:
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The following details were extracted from the standard cost card of a component:

During the period actual results were as follows:
Production was 1,100 components.
Direct Material Purchase and usage: 3,200 kgs at a cost of shs. 1,510,000/-
Wages paid: 7,120 hours at sh. 2,705,600/-

Required:
Calculate all variances that have arisen.

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Material Usage Variance:
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Shown below is the standard prime cost of a tube of industrial adhesive, which is the only product manufactured in one department of Gum Plc

The standard material allowance for each tube adhesive is 2lb of powder, ¼ litre of chemical and one tube.
The standard wage rate for mixing and pouring is shs 4,500 per hour.

During the previous month 4,500 tubes of adhesive were produced, there were no work in progress. Stock at the begin and the end of the month, and receipts and issue of materials during the month are shown below:

The above materials are used exclusively in the production of the adhesive and it is the policy of the company to calculate any price variance when materials are purchased

The direct employees operating the mixing and pouring plant worked a total of 2,050 hours during the previous month and earned a gross wage of shs 8,910,000.

Required to calculate:

1. Material Price Variance
2. Material usage variance
3. Direct labour efficiency variance
4. Direct labour wage rate variance

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Total Material Usage Variance:
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Mto wa Mbu Inc. has set up the following standards for materials and direct labour.

The number of finished units budgeted for the period was 10,000; 9,810 units were actually produced

Actual results were:
    Materials 98,073 kgs used
    Direct Labour 4,900 hrs for shs 10,290,000.
During the month, Purchases amounted 100,000 kgs at a total cost of shs 31,000,000. Note that, Price variances are isolated upon purchases.

Required:
Show computations of all material and labour variances

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Material Usage Variance:
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The following is the operating statement for Zinet Compnay for the financial year 2019.

The budgeted data for the year 2019 has the following

The following additional information is also available:
The actual sales revenue was TZS 2,880,000
Direct Materials purchased were 240 Kgs
It is assumed that inventory of raw materials and finished goods are valued at standard costs.
Actual production volume in units was 372 units.

Required: Calculate the following:

1. The actual sales volume in units
2. The actual quantity of materials consumed
3. The actual price of direct materials
4. The actual direct labour cost
5. The actual variable overhead rate per hour
6. The actual fixed overhead costs
7. The fixed overhead capacity and
8. Fixed overhead efficiency variances

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Actual sales volume in units:
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Mojawapo is one of the recently started businesses dealing with fresh juice. Below is the standard mix for producing 9 litres of juice. A standard loss of 10% of input is expected:

Actual input for the month of April 2020 were as follows:

Actual output of Juice for the month of April 2020 was 92,700 litres.

Required:

1. Material Price variance
2. Material Mix variance
3. Material Yield variance
4. Material Usage variance

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Material Usage Variance:
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The standard data of product X is given below:
Direct material cost 16 kgs @ T.shs 600    T.shs 9,600 and
Direct labour cost 6 hour @ T.shs 1,200    T.shs 7,200.

The production control department reported the following variances with relation to product X.
  Direct Material Price   T.shs 188,400 [F]
  Direct Material Usage   T.shs 4,800 [A]
  Direct Labour Rate   T.shs 105,980 [A]
  Direct Labour Efficiency   T.shs 84,780 [F]

Actual direct wages cost T.shs 1,713,200 and T.shs 550 was paid for each kilogram of direct material. There was no opening or closing stock of materials

Required
Calculate the following:

1. Actual output
2. Actual hour worked
3. Average actual wage rate per hour
4. Actual number of kilogram purchased and used.

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Actual Output:
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ABC Company has been experiencing adverse Variances in its performance. In search of the solution, Dr. Sarah, a Company Director of Finance has recommended investigations on the causes of variance. The management accountant is skeptical about investigating the variances on the ground that, if causes of variance are out of control, it will require additional cost to correct them. The management accountant concluded that, “We cannot afford doing the investigation now”. The director has engaged you as an independent consultant and has provided you with the following information:-

• Cost of investigation T.shs 420,000
• Cost of correction if out of control T.shs 600,000
• The present value of extra costs over the planning horizon before any control action T.shs 1,800,000
• Probability of the process being out of control is 25%

REQUIRED:

1. Advice the director as to whether, basing on the information provided, it is desirable to investigate the cause of the variance.
2. By how much should the probability of the process being out of control change for a decision in (a) above to change?

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Expected cost if you investigate:
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Shomile Company has just completed its operations for the month of October 2020. The total standard cost for all activities during October is given below:

Variances from standards were analysed, and recorded as given below:

REQUIRED: Compute the Actual cost incurred during the month of October 2020 for:

1. Direct Material.
2. Direct Labour
3. Variable Factory Overhead

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Actual Direct Material Cost:
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The following information is available from the records of rubber processing Company which follows standard costing system for the month of December, 2020.

Standard rates and prices are as follows:
Direct Materials rate per unit      T.shs 200
Standard input per unit (pieces)     10
Direct labour rate per hour      T.shs 200
Standard requirements per unit (hours)      2.5
Overheads per labour hour       T.shs 400.

REQUIRED: Compute:

1. Standard cost per unit.
2. Material variances
3. Labour variances
4. Overhead Variances

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Standard cost per unit:
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Lala has been given the following information regarding production of a certain product:
   Standard Fixed Overhead cost per Direct Labour Hour    T.shs 1,500
   Standard Direct Labour Hour per unit    2 hours
   Budgeted production    400 units
   Actual production    360 units
   Actual Direct Labour Hours worked    780 hours
   Actual cost incurred    T.shs 13,800,000.

REQUIRED:

1. Compute the following fixed overhead variances:
1. Expenditure Variance
2. Volume Variance
3. Efficiency Variance
4. Capacity Variance
2. Give two way and three way fixed overhead variance analysis.

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Fixed overhead expenditure variance:
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The budget for one month of Victoria Ulul Corporation for the month of April 2021 includes the following labour costs:

To produce 5,000 units of product X, the following labour charges are required:
Grade One    3,600 hours at T.shs 400   T.shs 1,440,000
Grade Two    2,800 hours at T.shs 300   T.shs 840,000

Actual production and direct labour charges were as follows:
6,000 units of product X were produced,
Grade One    3,000 hours at T.shs 400   T.shs 1,200,000
Grade Two    5,000 hours at T.shs 320   T.shs 1,600,000

REQUIRED: Calculate the direct labour cost variance for April 2021 and analyse it into rate, efficiency, mix and productivity variance using budgeted weighted average contribution method.

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Labour Efficiency Variance:
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Saragana Corporation operates a system of standard costing, which it uses amongst other things as the basis of calculating certain management bonuses.

In December 2020, the company’s production of 100,000 crates was in accordance with the budget. The standard quantity of material used in each crate is 1 kilogram, the standard price is T.Shs 500 per Kg. In December 2020, 105,000 kilograms of material were used, at an actual purchase price of T.shs 450,000 per thousand kilograms, (which was also the replacement cost).

The material buyer is given a bonus of 10% on any favourable material price variance. The production manager is as well given a bonus of 10% on any materials favourable quantity variance.

REQUIRED: Calculate the materials cost variance for December 2020.

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Material Usage Variance:
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