SE CTIO N A ‐TYPE QUE STI ONS : S EC T I O N 1 SYLLABUS AREA E – STANDARD COSTING STANDARD COSTING SYSTEMS When considering setting standards for costing which of the following would NOT be appropriate? Budget level A The normal level of activity should always be used for absorbing overheads True B C D 344 ideal standards B current standards C basic standards D attainable standards er ia A lH ub What are performance standards that have remained unchanged over a long period of time known as? What are performance standards that allow for efficient but not perfect operating conditions known as? A ideal standards B current standards C basic standards D attainable standards at 343 Average material usage should be established based on generally‐accepted working practices True A 342 Average prices for materials should be used, encompassing any discounts that are regularly available True Actual rate of pay per hour The labour rate used will be the rate at which labour is paid False M 341 Which of the following statements are true and which are false? Statement True False A variance is the difference between budgeted and actual cost. A favourable variance means actual costs are less than budgeted. An adverse variance means that actual income is less than budgeted. KA PLAN PUBLISHING www.AMaterialHub.com 101 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G VARIANCE CALCULATIONS AND ANALYSIS 345 A company uses standard marginal costing. Last month the standard contribution on actual sales was $10,000 and the following variances arose: Total variable costs variance $2,000 adverse Sales Price variance $500 favourable Sales volume contribution variance $1,000 adverse What was the actual contribution for last month? $ A company uses standard marginal costing. Last month, when all sales were at the standard selling price, the standard contribution from actual sales was $50,000 and the following variances arose: Total variable cost variance lH ub 346 $3,500 Adverse Total fixed costs variance $1,000 favourable Sales volume contribution variance $2,000 favourable B $47,500 C $48,500 D $49,500 at $46,500 The following information relates to labour costs for the past month: Labour rate Production time Time per unit Production units $10 per hour 15,000 hours 3 hours 5,000 units Wages paid Production Total hours worked $176,000 5,500 units 14,000 hours A Budget M 347 A er ia What was the actual contribution for last month? Actual There was no idle time. What were the labour rate and efficiency variances? 102 Rate variance Efficiency variance A $26,000 adverse $25,000 favourable B $26,000 adverse $10,000 favourable C $36,000 adverse $2,500 favourable D $36,000 adverse $25,000 favourable www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N A ‐TYPE QUE STI ONS : S EC T I O N 1 348 The following details relate to product T, which has a selling price of $44.00: $/unit 15.00 12.00 6.00 4.00 –––––– 37.00 –––––– Direct materials Direct labour (3 hours) Variable overhead Fixed overhead Actual units = Budget units - 100 units Budget units = Actual + 100 units = 900 units Budget fixed overhead = 900 units X $4 = $3600 During April 20X6, the actual production of T was 800 units, which was 100 units fewer than budgeted. The budget shows an annual production target of 10,800, with fixed costs accruing at a constant rate throughout the year. Actual overhead expenditure totalled $8,500 for April 20X6. Overheads are absorbed on the basis of units produced. A 367 A 1,000 A B 500 A 400 A C 100 A D 100 A er ia Volume $ 1,000 A 400 A A company operates a standard marginal costing system. Last month its actual fixed overhead expenditure was 10% above budget resulting in a fixed overhead expenditure variance of $36,000. at 349 Expenditure $ lH ub What were the overhead variances for April 20X6? 350 M What was the actual expenditure on fixed overheads last month? $324,000 B $360,000 C A A D $400,000 $396,000 FGH has the following budgeted and actual data: Budgeted fixed overhead cost Budgeted production (units) Actual fixed overhead cost Actual production (units) $120,000 20,000 $115,000 21,000 FOAR(unit) = $6 per unit What was the fixed overhead volume variance? A $4,500 adverse B $5,500 favourable C $6,000 favourable D $10,500 favourable KA PLAN PUBLISHING www.AMaterialHub.com 103 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G 351 A company budgeted to make 30,000 units of a product P. Each unit was expected to take 4 hours to make and budgeted fixed overhead expenditure was $840,000. Actual production of product P in the period was 32,000 units, which took 123,000 hours to make. Actual fixed overhead expenditure was $885,600. What was the fixed overhead capacity variance for the period? 352 A $21,000 favourable B $21,000 adverse C $35,000 adverse D $56,000 favourable Budgeted hours = Std hours X Budget units = 4 hours X 30000 units = 120000 hours FOAR(hour) = $840000/120000 hours = $7 per hour QRL uses a standard absorption costing system. The following details have been extracted from its budget for April 20X7: $48,000 FOAR(unit) = $10 per unit 4,800 lH ub Fixed production overhead cost Production (units) In April 20X7 the fixed production overhead cost was under‐absorbed by $8,000 and the fixed production overhead expenditure variance was $2,000 adverse. 3,800 B 4,000 C 4,200 D 5,400 A company has a higher than expected staff turnover and as a result staff are less experienced than expected. at 353 A er ia What was the actual number of units produced? M As an indirect result of this, are the labour rate variance and material usage variance likely to be adverse or favourable? 354 Material usage Favourable Favourable B A A Labour rate Adverse Favourable C Favourable Adverse D Adverse Adverse A company is obliged to buy sub‐standard materials at lower than standard price because nothing else is available. As an indirect result of this purchase, are the materials usage variance and labour efficiency variance likely to be adverse or favourable? 104 Materials usage Labour efficiency A Favourable Favourable B Adverse Favourable C Favourable Adverse D Adverse Adverse www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N A ‐TYPE QUE STI ONS : S EC T I O N 1 355 Fawley’s direct labour cost data relating to last month were as follows: Standard labour cost of actual hours worked Standard hours worked Standard rate per hour Labour rate variance Labour efficiency variance $116,000 30,000 $4 $5,800 favourable $4,000 favourable What is the actual rate of pay per hour (to 2 decimal places)? $ 3.80 356 Michel has the following results. 10,080 hours actually worked and paid costing $8,770 1.95 hours B 1.96 hours C 2.07 hours D 2.08 hours An extract from the standard cost card for product CJ is as follows: er ia 357 A lH ub If the rate variance is $706 adverse, the efficiency variance $256 favourable, and 5,000 units were produced, what is the standard production time per unit? Direct labour (0.5 hours × $12) $6 at 710 units of CJ were produced in the period and staff worked 378 hours at a total cost of $4,725. Of these hours 20 were lost due to a material shortage. Idle time Hours worked = 378 - 20 = 358 hours What is the labour efficiency variance? $516 favourable B $36 favourable C $36 adverse A D M A $516 adverse KA PLAN PUBLISHING www.AMaterialHub.com 105 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G 358 A company makes a single product. The following details are from the cost card for the product: Direct labour Variable overhead 10 hours at $5 per hour 10 hours at $1.50 per hour The actual results for the last period are: 500 units produced Labour Variable overheads 4,800 hours $7,700 359 Expenditure Efficiency A $300 A $500 F B $300 F $500 A C $500 A $300 F D $500 F $300 A lH ub What are the variable overhead expenditure and efficiency variances? A company uses standard absorption costing. The following data relate to last month: Actual 900 Actual $ 52 40 er ia Budget Sales and production (units) 1,000 Standard $ Selling price per unit GP per unit $11 50 Total production cost per unit 39 A company operates a standard marginal costing system. Last month actual fixed overhead expenditure was 2% below budget and the fixed overhead expenditure variance was $1,250. A 360 Adv M $ 1100 at What was the adverse sales volume profit variance last month? What was the actual fixed overhead expenditure for last month? 361 106 A $61,250 B $62,475 C $62,500 D $63,750 Under absorption costing the sales volume variance is calculated by multiplying the difference in sales volumes by which of the following? A Standard contribution per unit B Standard cost per unit C Standard profit per unit D Standard selling price per unit www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N A ‐TYPE QUE STI ONS : S EC T I O N 1 362 A business uses marginal costing to calculate variances. If they were to use absorption costing the current method of calculating the sales volume variance would be? Marginal, (Budgeted SU ~ Actual SU) Std contribution per unit A Higher or the same B Lower or the same C The same D Different but not able to say higher or lower Absorption, (Budgeted SU ~ Actual SU) Std profit per unit The following information relates to the next TWO questions The standard direct material cost for a product is $50 per unit (12.5 kg at $4 per kg). Last month the actual amount paid for 45,600 kg of material purchased and used was $173,280 and the direct material usage variance was $15,200 adverse. 365 $8,800 adverse B $8,800 favourable C $9,120 adverse D $9,120 favourable lH ub A A 3,344 units B 3,520 units C 3,952 units D 4,160 units er ia What was the actual production last month? at 364 What was the direct material price variance last month? A new machine is purchased which is more expensive, but requires less labour to operate per unit. M 363 A What is the impact on the fixed overhead variances? Expenditure variance Volume variance A Adverse Adverse B Adverse Favourable C Favourable Favourable D Favourable Favourable KA PLAN PUBLISHING www.AMaterialHub.com 107 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G 368 A $1,080 favourable B $480 favourable C $480 adverse D $1,080 adverse Which of the following could be the cause of an adverse sales volume variance for garden furniture? (i) The company offers discounts on sales prices in order to maintain business. (ii) Poor weather leads to a reduction in sales. (iii) A strike in the factory causes a shortage of finished goods. A (i) and (ii) only B (i) and (iii) only C (ii) and (iii) only D All of them lH ub 367 QR has budgeted to produce 4,000 units in January. Actual production was 3,700 units with fixed production overheads of $10,300. The standard fixed overhead cost per unit was 1.5 hours at $2.40 per hour. 5,800 actual production hours were worked. Std cost per unit = 1.5 hours X $2.40 = $3.60 per unit What was the fixed overhead volume variance? er ia 366 The following information relates to April production of product CK: Budget 600 Std qty = 2.5 kg 1,500 $76,500 Std price = $51 per kg M at Units produced Input of material (kg) Cost of material purchased and input Actual 580 1,566 $77,517 A $2,349 favourable B A What is the materials usage variance? C D 369 $3,366 adverse $5,742 adverse $5,916 adverse For product DR, the material price variance for the month of August was $1,000 favourable and the material usage variance was $300 adverse. The standard material usage per unit is 3 kg, and the standard material price is $2 per kg. 500 units were produced in the period. Opening inventories of raw materials were 100 kg and closing inventories 400 kg. What were the material purchases in the period? kg 108 www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N A ‐TYPE QUE STI ONS : S EC T I O N 1 370 The following information relates to a month’s production of product CN: Budget Units produced 600 2.5 kg Input of material P (kg) 1,500 $17 Cost of material P purchased and input $25,500 Actual 580 1,566 $25,839 What is the price variance for material P? $783 favourable B $339 adverse C $1,189 favourable D $1,972 adverse A company uses a standard absorption costing system. Last month budgeted production was 8,000 units and the standard fixed production overhead cost was $15 per unit. Actual production last month was 8,500 units and the actual fixed production overhead cost was $17 per unit. Actual fixed overhead = $17 X 8500 units = $144500 lH ub 371 A $7,500 B $16,000 C $17,000 D $24,500 A company is reviewing actual performance to budget to see where there are differences. The following standard information is relevant: M Selling price at 372 A er ia What was the total adverse fixed production overhead variance for last month? A Direct materials Direct labour Fixed production overheads Variable production overheads Fixed selling costs Variable selling cost Total costs Budgeted sales units Actual sales units $ per unit 50 - $4 - $16 - $10 - $1 = $19 per unit ––––– 4 16 5 10 1 1 ––––– 37 3,000 3,500 What was the favourable sales volume variance using marginal costing? A $9,500 B $7,500 C $7,000 D $6,500 KA PLAN PUBLISHING www.AMaterialHub.com 109 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G 373 A company uses variance analysis to control costs and revenues. Information concerning sales is as follows: Budgeted selling price Budgeted sales units Budgeted profit per unit Actual sales revenue Actual units sold $15 per unit 10,000 $5 $151,500 9,800 What was the sales volume profit variance? $500 favourable B $1,000 favourable C $1,000 adverse D $3,000 adverse A company operates a standard absorption costing system. The standard fixed production overhead rate is $15 per hour. lH ub 374 A The following data relate to last month: Actual hours worked 5,500 5,000 er ia Budgeted hours Standard hours for actual production 4,800 What was the fixed production overhead capacity variance? B $7,500 favourable C $10,500 adverse D $10,500 favourable M at $7,500 adverse Direct labour cost data relating to last month is as follows: A 375 A Actual hours worked Total direct labour cost Direct labour rate variance Direct labour efficiency variance 28,000 $117,600 $8,400 adverse $3,900 favourable To the nearest thousand hours, what were the standard labour hours for actual production last month? 110 A 31,000 hrs B 29,000 hrs C 27,000 hrs D 25,000 hrs www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N A ‐TYPE QUE STI ONS : S EC T I O N 1 376 Which of the following variances would you find within an absorption costing system and which in a marginal costing system? Absorption costing Marginal costing Sales volume contribution variance Fixed overhead capacity variance Fixed overhead volume variance Sales volume profit variance Fixed overhead efficiency variance RECONCILIATION OF BUDGETED AND ACTUAL PROFIT 377 The budgeted contribution for last month was $43,900 but the following variances arose: er ia Sales price variance Sales volume contribution variance Direct material price variance Direct material usage variance Direct labour rate variance Direct labour efficiency variance Variable overhead expenditure variance Variable overhead efficiency variance $ 3,100 adverse 1,100 adverse 1,986 favourable 2,200 adverse 1,090 adverse 512 adverse 1,216 favourable 465 adverse lH ub (Budgeted contribution per unit X Budgeted Sale units) Below is a statement of variances for a business: M 378 at What is the actual contribution for last month? $ 38635 (Actual contribution per unit X Actual sale units) A Sales price variance Sales volume variance Materials price variance Materials usage Variance Labour rate variance Labour efficiency Variance Fixed overhead expenditure variance Fixed overhead volume variance $1,500F $2,100A $4,200A $1,500F $900F $450A $1,750F $1,800A If the budgeted profit for the period was $250,000, what was the actual profit? Budgeted profit per unit X Budgeted sale units) A $247,100 B $248,300 C $251,700 D $252,900 Actual profit per unit X Actual sale units KA PLAN PUBLISHING = $247100 www.AMaterialHub.com 111 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G 379 Below is a statement of variances for a business: Sales price variance $200F Sales volume variance $350F Materials price variance $250F Materials usage Variance $120A Labour rate variance $450A Labour efficiency Variance $800A Fixed overhead expenditure variance $600F Fixed overhead volume variance $860A Actual profit per unit X Actual sale units) If the actual profit for the period was $7,170 what was the budget profit? $6,340 B $5,240 C $9,100 D $8,000 (Budgeted Profit per unit X Budgeted sale units) = $8000 lH ub 380 A Below is a statement of variances for a business, including the budgeted and actual profit. What is the missing value for the labour rate variance? $19,000 (Budgeted Profit per unit X Budgeted sale units) Sales price variance $1,200A Sales volume variance Materials price variance Labour rate variance $2,000F $3,500F $4,200A $ at Materials usage Variance er ia Budget profit M Labour efficiency Variance $1,500A Fixed overhead expenditure variance $1,500F Fixed overhead volume variance $750A Actual profit $21,100 (Actual profit per unit X Actual sale units) A 112 Budgeted profit $19000 Total variance adjustment (R) $xxx Net amount $18250 Labour rate variance (R) $2750 Actual profit $21100 www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N B ‐TYPE QUE STI ONS : S EC T I O N 2 STANDARD COSTING 458 Cabrinda Co manufactures bulbs. The following figures are available: 500 kg of direct materials were actually purchased The standard cost per kg is $2.25, leading to a standard cost of actual purchases of $1,125 The direct materials price variance is $125 favourable The direct materials usage variance is $45 adverse Required: (a) From the information provided calculate (i) The actual price paid per kg for the direct material (to 2 decimal places) (ii) lH ub $ The standard quantity that should have been used for actual production (to the nearest whole kg). kg A lower quality direct material has been purchased B higher quality direct material has been purchased (1 mark) The following graph shows the standard price and quantity and the actual and price and quantity relating to the direct material for the manufacture of the bulbs. A M at (c) (2.5 marks) Which of the following is likely to lead to the variances stated above? er ia (b) (2.5 marks) Required: Material price variance = Std price ~ Actual price) Actual qty purchase Which area correctly represents the direct material price variance? A APWZSP B APYXSP C AQWYSQ D AQZXSQ KA PLAN P UB L I S H I N G (2 marks) www.AMaterialHub.com 139 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G (d) The following spreadsheet has started to be completed for direct materials, with a showing where data has been entered. A 1 B C Standard Actual 2 Production in units 3 Kg’s per unit 4 Cost per kg ($) 5 Total kg’s purchased C6/C4 6 Total material cost Required: What will be the formula for the materials usage variance? = (C5 × C4) – (B2 × B3 × B4) B = (C5 × B4) – (B2 × B3 × B4) C = (C5 × C4) – (C2 × B3 × C4) D = (C5 × B4) – (C2 × B3 × B4) Material usage variance (Std Qty X Actual Units ~ Actual Qty) Std Price ((B3 X C2) ~ C5) B4 lH ub A (B3 X B4 X C2) - (C5 X B4) (2 marks) The following is a proforma operating statement for Wick Co, a company manufacturing candles. Budgeted profit $ at 459 er ia (Total: 10 marks) Sales volume variance M Standard profit on actual sales A Sales price variance Favourable ($) Adverse ($) Cost variances Materials price Materials usage Labour rate Labour efficiency Variable overhead rate Variable overhead efficiency Fixed overhead expenditure Fixed overhead capacity Fixed overhead efficiency Total Actual profit 140 www.AMaterialHub.com KA PLAN PUBLISHING SE CTIO N B ‐TYPE QUE STI ONS : S EC T I O N 2 (a) (b) Which of the following THREE statements are correct? A Wick Co uses standard profit per unit to calculate the sales volume variance. B The fixed overhead expenditure variance is the same figure as the over or under absorption of fixed overheads C Wick Co absorbs fixed overheads on an hourly basis. D The efficiency variances will all either be favourable or adverse (2 marks) The following information is available for Wick Co for month 1 Budgeted hours = 2000 hours Budgeted Fixed overheads $20,000 to be absorbed at $10/hr Time to make one unit 4 hours Actual $23,000 Time taken to make 550 units 2,475 hours Required: lH ub Fixed overheads Calculate the fixed overhead (to the nearest whole number): (i) Expenditure variance and state if it is favourable or adverse (ii) er ia $ Capacity variance and state if it is favourable or adverse. S Efficiency variance and state if it is favourable or adverse. (c) (2.5 marks) (2.5 marks) M $ at (iii) (2 marks) Is the following statement true/false? A ‘A favourable fixed overhead capacity variance is likely to arise if a new machine is bought to replace an unreliable one.’ A True B False (1 mark) (Total: 10 marks) KA PLAN PUBLISHING www.AMaterialHub.com 141 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G 460 Bogh Co manufactures wooden picture frames. The company’s information system produces an operating statement, and on the basis of the variances calculated, managers are assessed and bonuses paid. The standard material cost for each picture frame is $8. This is made up: Wood 0.5 kg @ $10 per kg $5 Glass 0.25 kg @ $12 per kg $3 In July, Bogh manufactured 300 picture frames, and purchased: Wood 170 kg $2,040 Glass 70 kg $860 Required: Using the information above, calculate (to the nearest whole number): (i) The total materials price variance and state if it is adverse or favourable. lH ub (a) $ (ii) The total materials usage variance and state if it is adverse or favourable $ (2.5 marks) The managers have now been told that although the levels of glass inventory did not change during July, wood inventory rose by 15 kg. er ia (b) (2.5 marks) Which manager will need to have this fact accounted for in their performance appraisal? B Production manager at Purchasing manager (1 mark) M (c) A In the following graph, which area arises because both the material quantity and price are above standard levels? A Price $ Actual 1 2 Standard 3 Standard 142 A Area 1 only B Area 2 only C Area 2 and 3 D Area 1 and 2 Actual Quantity (2 marks) www.AMaterialHub.com KA PLAN P UB L I S H I N G SE CTIO N B ‐TYPE QUE STI ONS : S EC T I O N 2 (d) Are the following statements true or false? Statement one: A flexed budget cannot be produced for non‐manufacturing costs such as sales commission. Statement two: All costs can be controlled in the long term. Statement one Statement two A True True B True False C False True D False False (2 marks) (Total: 10 marks) An operating statement has been partially completed for a company that makes pies and pasties: Budgeted contribution Sales volume variance Sales price variance er ia Standard contribution on actual sales lH ub 461 Cost variances M Materials price at Favourable ($) Materials usage A 5,075 175 (F) 5,250 750 (A) 4,500 Adverse ($) 700 600 Labour rate Labour efficiency $ 724 650 Variable overhead expenditure Variable overhead efficiency GAP 1 Fixed overhead expenditure Total KA PLAN PUBLISHING www.AMaterialHub.com 143 www.AMaterialHub.com M A ‐FMA: MANA GEME NT A CCO UN TIN G Required: (a) For the following variances, state whether it is true or false that the variance stated above could be caused by better quality ingredients being purchased for the pies: True (b) False (i) Sales volume (1 mark) (ii) Materials price (1 mark) (iii) Labour rate (1 mark) (iv) Materials usage (1 mark) (v) Sales price (1 mark) What should the title be in Gap 1? (1 mark) Actual Total Contribution Using the following information, calculate the variable overhead expenditure and efficiency variances, and state if they are favourable or adverse. lH ub (c) Actual production was 1,500 units which were completed in 3,620 hours at a variable overhead cost of $11,000. er ia The budget was that each pie would take 2.5 hours to make and the variable overhead absorption rate would be $3 per hour. (4 marks) Variable overhead expenditure variance $ 140 (Adverse) Variable overhead efficiency variance $ 390 (Favourable) Variable overhead efficiency variance (Total: 10 marks) (2.5 hours X 1500 units ~ 3620 hours) $3 = $390 (Favourable) at Expenditure variance ($3 X 3620 hours ~ $11000) = $140 (Adverse) Tel Co manufactures televisions and sells them to large retailers. Due to high staff turnover, no liquidity ratios have been calculated for the year ahead. A 462 M PERFORMANCE MEASUREMENT The bank is concerned about the forecast increase in Tel Co’s overdraft to $40,500 at 30 November 20X4, and has suggested that the ratios be calculated. The following forecast information is available for the year ended 30 November 20X4: $ 144 Revenue 343,275 Cost of sales 284,000 Purchases 275,000 Closing Inventory 35,000 Receivables 37,400 Payables 35,410 www.AMaterialHub.com KA PLAN PUBLISHING
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