Tutorial Questions

Standard Costing and Variance Analysis

Q1
Jazz Ltd produces product J.
The standard cost per product J is given as follows:
Raw materials - 3 kg at $4.50 per kg
Labour - 4 hours at $5.00 per hour

The actual cost and production for the last two months are given below:
Month 1 Month 2
Production (units) 1250 1375
Material usage (kg) 4,000 4,100
Material cost ($) 17,000 19,680
Labour hours paid 4,750 5,550
Labour cost ($) 24,000 27,700

Required:
(a) Material price variance
(b) Material usage variance
(c) Material cost variance (don’t need)
(d) Labour rate variance
(e) Labour usage variance
(f) Labour cost variance (don’t need)

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Q2

Betteroff Ltd specializes in producing fertilizers. You are given the following standard
and actual information for the month of January.

Standard cost per box $

Direct material 36.00
(8 kg at $4.5 per kg)
Direct labour 12.00
(2 hours at $6 per hour)

Actual data

Boxes produced - 4500 boxes

Direct labour - 9500 hours at $5.70 per hour
Direct material - 35,500kg at $4.60 per kg

Required: Calculate the following variances

(a) Direct material price variance
(b) Direct material usage variance
(c) Direct material cost variance (don’t need)
(d) Direct labour rate variance
(e) Direct labour efficiency variance
(f) Direct labour cost variance (don’t need)

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Q3 (don’t need)
Company Beta produces a single product Detergent A. Company Beta uses a standard
costing system to set attainable standards for its direct materials, direct labour and
overhead cost. Standards have been reviewed and revised annually as necessary. Extracts
from standards and variance statement are as follows:

Extract from Standard data

Planned production 10,000 units
Planned hours 2,000 hours
Direct material 10,000 kilograms RM 10,000
Direct labour 2000 hours RM 6,000

Extract from variance report

Actual production 9,000 units
Direct material usage variance RM 500 adverse
Direct material price variance RM 1,425 favourable
Direct labour efficiency variance RM 300 favourable
Direct labour rate variance RM 425 adverse

Required :
Compute the following
i. Actual quantity of material used
ii. Actual price paid per kilogram
iii. Actual hours paid for direct labour
iv. Increase in the labour rate above standard.

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Q4

Quicksilver Company has set the following standards for one unit of product:

Direct material : Quantity: 6.2 pounds per unit; Price per pound: $11 per pound
Direct labor : Quantity: 6 hours per unit; Rate per hour: $23 per hour

Actual costs incurred in the production of 2,800 units were as follows:

Direct material: $194,350 ($11.50 per pound)
Direct labor: $393,750 ($22.50 per hour)
All materials purchased were consumed during the period.

Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.

Q5

Upstart, Inc. manufactures a product that has the following standard costs:

The following information pertains to July:

Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150
Direct material used: 36,000 yards
Direct labor: 7,500 hours at $18.30 per hour, or $137,250
Actual completed production: 1,050 units
Assume that the company computes variances at the earliest point in time.

Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.

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Q6

A manufacturer produces one single type of radio, and its entire production is sold as
soon as it is produced. There are no opening or closing stocks and work in progress is
negligible. The company operates a standard variable costing system and variances are
analyzed every month. The standard cost card for the radio shows the following:

Standard Cost Card RM

Direct materials 0.5 kg at RM8 per kg 4.00
Direct labor cost 2 hours at RM 4.00 per hour 8.00
Variable overheads 2 hours at RM 0.60 per hour 1.20
Total 13.20

For the month of May 2010, the company has budgeted to produce and sell 5,100 radios
at a standard sales price of RM40.

Actual results for May 2010 were as follows:

Production of 4,850 radios were sold for RM191,200

Materials purchased and consumed in production 2,300 kgs at a total cost of RM 19,600
Labor hours amounted to 8,000 hours at a cost of RM 33,600
Variable overheads amounted to RM 5,200

Required:

a. Compute the material price variance for the month

(3 marks)

b. Compute the material quantity variance for the month.

(3 marks)

c. Compute the labor rate variance for the month.

(3 marks)

d. Compute the labor efficiency variance for the month.

(3 marks)

e. Discuss who in the company could be responsible for the material price and
labour efficiency variance.
(6 marks)

f. Explain the possible causes for the labour rate and material quantity variance.

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Q7 (don’t need)
Rimbuan Hijau Ltd produces a single product Kuning Cerah (KC). The following
standard costs apply for the manufacture of 100 units in a batch:
$/batch

Material 200 kg @ $20.00 per kg 4,000

Skilled labor 300 hours @ $12.00 per hour 3,600
Variable overhead 300 hours @ $20.00 per hour 6,000
Fixed overhead 300 hours @ $30.00 per hour 9,000
22,600
=====
The monthly production and sales budget is 10,000 units and selling price/unit is $350.
For the month of June just ended, the following actual data was extracted from the
accounting books:

Quantity actually produced and sold 15,000 units

Sales value $4,500,000
Material purchased and used (33,000 kg) $620,000
Skilled Labor - hour paid (46,000 hours) $575,000
Skilled labor - hours actively working 44,000 hours
Variable Overheads $870,000
Fixed Overheads $1,200,000

Required:
Compute the operational variances for material price, material usage, labor rate, labor
efficiency, labor idle-time, variable overheads expenditure, variable overhead efficiency,
fixed overhead expenditure, fixed overhead volume, sales price and sales volume
variance.

Causes for the variance to be calculated:

Material Price Variance:

 Cause 1: Unexpected changes in market prices of raw materials.

 Cause 2: Negotiation inefficiencies leading to higher purchase costs.

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2. Material Usage Variance:

 Cause 1: Production inefficiencies causing material waste or scrap.

 Cause 2: Inaccurate estimation of material requirements during production
planning.

3. Labor Rate Variance:

 Cause 1: Market wage fluctuations or changes in employee pay scales.

 Cause 2: Payment errors or misclassifications of labor costs.

4. Labor Efficiency Variance:

 Cause 1: Employee performance issues like fatigue, lack of training, or

equipment malfunction.
 Cause 2: Inaccurate setting of labor standards for the production process.

Four Factors to considered for investigation:

1. Materiality: Is the variance amount significant enough to warrant further investigation

relative to total costs or revenues? Small variances may not be worth the time and
resources required for analysis.

2. Repeatability: Has the variance occurred consistently over a period or is it a one-time

event? Recurring variances might indicate a systemic problem requiring attention.

3. Controllability: Can management influence the factors causing the variance? For
example, investigating a market-driven price variance may be less productive than one
caused by inefficient usage of materials.

4. Trend Analysis: Is the variance increasing, decreasing, or remaining constant? A

trend suggests a potential underlying issue that needs to be addressed.