Cost Accounting Questions

QUESTION ONE

Bidii Company Ltd. Manufactures a single product and uses standard costing. The standard costs for producing one unit of the product are as follows:

Note: Overhead is applied on basis of direct labour hours.

In the month of May 20X6, the company had budgeted to produce 10,000 units. However, 11,000 units were actually produced and the costs incurred were as follows:

Note: There was no charge in stock of work in progress.

Required

Calculate the following variances indicating whether they are favourable (F) or unfavourable (U):

1. Material price variance
2. Material usage variance
3. Labour rate variance
4. Labour efficiency variance
5. Total variable overhead variance
6. Total fixed overhead variance.

(Total: 20 Marks)

QUESTION TWO

Maputo Ltd. Manufactures and sells one brand of washing soap. The sale price per one dozen packet is Sh.50. The standard production cost is Sh.42.80 per dozen arrived at as follows:

Factory overheads are allocated on the basis of machine at the rate of sh.12 per hour. During the last financial year the company had budgeted to produce 72,000 dozen packets. However, material shortages limited production to 64,000 dozen packets for which the following costs were incurred:

The company utilized 60,000 machine hours

Required

1. Calculate the following variances:
   1. Material price and usage variance (6 marks)
   2. Labour rate and efficiency variances (4 marks)
   3. Variable overhead spending and efficiency variances. (4 marks)
   4. Fixed overhead volume variance (3 marks)

2. What is the significance of the fixed overhead volume variance calculated above  (3 marks)

(Total: 20 marks)

QUESTION THREE

Beauty Products Ltd. Are manufactures of a body lotion that is sold to retailers in packages of 24 one-quarter litre bottles. In the month of July, 750 packages were produced and sold. Details regarding production costs are given below:

Beauty Products had budgeted to produce and sell 1000 packages for the month of July. At this production level they anticipated a net profit of sh.90,500 as shown below:

Required

1. Prepare a flexible budget profit and loss statement for the production level achieved for Beauty Products Ltd. For the month of July (6 marks)
2. Determine the effect (favourable or unfavourable) that the failure to achieve the target sales of 1000 units in July had no budgeted profit for each of the following items show your calculations)
   1. Sales
   2. Materials
   3. Material A and Material B
   4. Labour
   5. Overheads
   6. Packaging material
   7. Administrative costs (12 marks)
3. Explain briefly TWO other major factors (apart from the failure to achieve target sales) which are causes of the difference between budgeted and actual profit. (Calculations are not necessary) (4 marks)

(Total: 22 marks)

QUESTION FOUR

For a product the following data was given:

Standards per unit of product:

Direct material 4 kilogrammes at Sh.0.75 pr kilogramme

Direct labour 2 hours at sh.1.60 per hour

Actual details for a given financial period:

There was no work-in-progress at the beginning or end of the period.

You are required to

1. Calculate the following variances:
   1. Direct materials costs;
   2. Direct materials price, based on issues to production;
   3. Direct material usage;
   4. Direct wages cost;
   5. Direct wages rate;
   6. Direct labour efficiency;
2. State whether each of the following cases, the comment given and suggested as the possible reason for the variance, is consistent or inconsistent with the variance you have calculated in your answer to (a) above, supporting each of your conclusions with a brief explanatory comment.

Items in a.

1. Direct materials price variance; the procurement manager has ignored the economic order quantity and, by obtaining bulk quantities, has purchased material at less that the standard price;
2. Direct materials usage variance: material losses in production were less than had been allowed for in the standard;
3. Direct wages rate variance: the union negotiated wage increase was Sh.0.15 per hour lower than expected;
4. Direct labour efficiency variance: the efficiency of labour was commendable.

QUESTION FIVE

Maridadi People Ltd., an exclusive cosmetic business, manufactures a popular perfume, known as Jasho, which it sells in bottles, thorough its retail shops for Sh.2,000. During the latest quarter ending 30 September 20X1, the company budgeted to make a profit of Sh.875,000 before deducting fixed overheads amounting to Sh.400,000. The standard cost per bottle is shown below

Factory overhead costs (variable and fixed) are absorbed into products on the basis of direct labour hours.

Actual results for the quarter as follows:-

Production in the quarter amounted to 1300 units. Out of the total raw materials purchased, 2000 Kg. Are still in stock. There were no operating balances of raw materials or finished goods stocks. It is the policy of the company to value all stocks at standard cost.

Required

1. Calculate the following variances; indicting clearly whether they are favaourable (F) or unfavourable (U): -
   1. Material price and usage.
   2. Labour rate and efficiency
   3. Variable factory overhead over or under absorbed
   4. Sales price and sales margin quantity. (15 marks)

2. Independently calculate the operating profit variance; and explain its significance.  (3 marks)

3. Why should management investigate favourable significant variances? (2 marks)

(Total: 20 marks)