MZUMBE UNIVERSITY

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
STANDARD COSTING AND VARIANCE ANALYSIS: REVIEW QUESTIONS
ACC 222: COST AND MANAGEMENT ACCOUNTING II
BAF II (BS & PS) 2020/21
Discussion Questions
1. What is the difference between Standard and budget?
2. What is meant by the term variance?
3. Why the variances are generally segregated in terms of a price variance and Quantity variance?
4. Who is generally responsible for the material price variance? The Quantity variance? The labour
efficiency variance?
5. Distinguish between ideal and practical standards.
6. The labour rate variance is never controllable. Do you agree or disagree? Why?
7. If the materials price variance is favourable but the materials quantity variance is unfavourable,
what might this indicate?

Tutorial Exercise
1. Malenda Plc has a several product lines on their line of business, one of their most selling
products is Product X. Malenda company operates a system of standard costing. Details of
information for the month of July, 2002 are as under:
Standard output from each ton of material : 50 units
Standard price per ton : TZS.150,000.
Actual usage : 100 tons
Actual price per ton : TZS.200,000
Actual output : 6000 units
Required
Calculate material variances.

2. Mazimbu Timber company manufactures a number of consumer items for general household use.
One of these products is a kitchen slicing board, requires an expensive hardwood. During a recent
month, the company manufactured 4,000 slicing boards using 11,000 board feet of hardwood.
The hardwood cost the company TZS 18,700,000.
The company’s standards for one slicing board are 2.5 board feet of hardwood, at a cost of TZS
1,80O per board foot.
Required:
i) According to the standards, what cost for wood should have been incurred to make 4,000
chopping blocks? How much greater or less is this than the cost that was incurred?
ii) Break down the difference computed in (i) above into a materials price variance and a
materials quantity variance

3. Marambau ltd produces different types of chemicals, the standard cost of a chemical mixture is:
40% material A at TZS.20,000 per kg.
60% material B at TZS.30,000 per kg.
 A standard loss of 10% expected in production. During a period, there is used:
90kgs material A at cost of TZS.18,000 per kg
110kgs material B at cost of TZS.34,000 per kg.
The weight produced is 182kgs of good product.
Calculate:
1. Material price variance
2. Material mix variance
3. Material yield variance
4. Material cost variance.
4. Lipijema Company manufactures a product P by mixing three raw materials. For every 100kg of
output, 125kg of raw material input are used. In April 2007, there was an output of 5,600kg of P.
the standard and actual particulars of April, 2007 are as follows:

Raw material Standard Actual

Mix Price per kg Mix Price per Kg
I 50 TZS 40,000 60 TZS 42,000
II 30 TZS 20,000 20 TZS 16,000
III 20 TZS 10,00 20 TZS 12,000
Required:
Calculate all material variances. The actual quantity of material used was 7,000kg.
5. Dream Hutt Limited, prepares and deliver meals for a number their VIP customers. One of the
company’s products is Pizza with white sauce recipe sauce, fresh baby corn, and sandwich.
During the most recent week, the company prepared 6,000 of these meals using 1,150 direct
labour-hours. The company paid these direct labour workers a total of Tzs. 11,500,000 for this
work which was equivalent to Tzs. 10,000 per hour.
According to the standard cost card for this meal, it should require 0.20 direct labour-hours at a
cost of Tzs. 9,500 per hour.
Required:
i) According to the standards, what direct labour cost should have been incurred to prepare
6,000 meals? How much does this differ from the actual direct labour cost?
ii) Break down the difference into a labour rate variance and a labour efficiency variance.

6. The fallowing data are available for Nya Miranda Company

Gross Direct wages TZS.30,000
Standard hours 1,600
Standard rate per hour TZS.15
Actual hours paid 1,500
Actual hours paid include hours not worked (abnormal idle time): 50
Required:
Calculate the fallowing from the above data
a) Labour cost variance
b) Labour rate variance
c) Labour efficiency Variance
d) Labour Idle time variance
7. Hollowell Audio, Inc., manufactures military-specification compact discs. The company uses
standards to control its costs. The labour standards that have been set for one disc are as follows:
Standard Hours Standard Rate per Hour Standard cost
6 Minutes 24,000 2,400
During July, 2,125 hours of direct labour time were required to make 20,000 discs. The direct
labour cost totalled TZS 49,300,000 for the month.
Required:
i) Compute labour cost variance.
ii) Compute labour rate variance and a labour efficiency variance.
iii) The budgeted variable manufacturing overhead rate is $16.00 per direct labour-hour.
During July, the company incurred $39,100 in variable manufacturing overhead cost.
Compute the variable overhead rate and efficiency variances for the month.

8. The Worldwide Credit Card, Inc., uses standards to control the labour time involved in opening
mail from card holders and recording the enclosed remittances. Incoming mail is gathered into
batches, and a standard time is set for opening and recording each batch. The labour standards
relating to one batch are as follows:
Standard Hours Standard Rate per Hour Standard cost
Per batch 1.25 TZS 12,000 TZS 15,000
The record showing the time spent last week in opening batches of mail has been misplaced.
However, the batch supervisor recalls that 168 batches were received and opened during the
week, and the controller recalls the following variance data relating to these batches:
Total labour spending variance TZS 330,000 A
Labour rate variance TZS 150,000 F
Required:
i) Determine the number of actual labour-hours spent opening batches during the week.
ii) Determine the actual hourly rate paid to employees for opening batches last week.

9. Morasa plc. delivered goods ordered by customer online to their physical address. The company
maintains warehouses that stock items carried by its online clients. When a client receives an
order from a customer, the order is forwarded to Morasa plc, which pulls the item from storage,
packs it, and ships it to the customer. The company uses a predetermined variable overhead rate
based on direct labor-hours.
In January 140,000 items were shipped to customers using 5,800 direct labor hours. The company
incurred a total of TZS 15,950,000 in variable overhead costs. According to the company’s
standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable
overhead rate is TZS 2,800 per direct labor-hour.
Required: Calculate the fallowing

i) Calculate Overhead cost variance

ii) Variable overhead rate variance and a variable overhead efficiency variance.
iii) The labor rate variance is never controllable. Comment with reasons.
10. A factory has estimated its overheads for one year at TZS 96,000,000. The factory runs for
300 days in a year. It works for 8 hours a day. The total budgeted production for the year is 24,000
articles.
Actual data are also given to you as under for the month of April.
Actual overhead TZS 8,500,000
Output 2,100 articles
Idle time 4 hours
Calculate:
1. Overhead cost variance
2. Overhead budget variance
3. Overhead efficiency variance
4. Idle Time variance.
11. The following information are available in the books of Zhinheng ltd for 2012 period.

Budgeted Sales Actual Sales

Qty Rates (TZS) Amount (TZS) Qty Rates (TZS) Amount
Products (TZS)
X 1000 2,000 2,000,000 1800 2,500 4,500,000
Y 3000 3,000 9,000,000 4200 2,750 11,550,000
4000 11,000,000 6000 16,050,000
Required: Calculate

(a) Total Sales variance

(b) sales price variance
(c) Sales mix variance
(d) Sales quantity variance.

12. BBA company operates sells three products, A, B and C which are substitutes for each other. The
following standard selling price and cost data relate to these three products

Product Selling price per unit Direct material per unit Direct labour per unit
A TZS. 14,000 3·00 kg at TZS. 1,800 per kg 0·5 hrs at TZS. 6500 per hour
B TZS. 15,000 1·25 kg at TZS. 3280 per kg 0·8 hrs at TZS. 6500 per hour
C TZS. 18,000 1,940 kg at TZS. 2,500 per kg 0·7 hrs at TZS. 6,500 per hour

Budgeted fixed production overhead for the last period was TZS. 81,000,000. This was absorbed
on a machine hour basis. The standard machine hours for each product and the budgeted levels
of production and sales for each product for the last period are as follows

Product A B C
Standard machine hours per unit 0·3 hrs 0·6 hrs 0·8 hrs
Budgeted production and sales (units) 10,000 13,000 9,000
 Actual volumes and selling prices for the three products in the last period were as follows:

Product A B C
Actual selling price per unit TZS. 14,500 TZS. 15,500 TZS. 19,000
Actual production and sales (units) 9,500 13,500 8,500
Required

Calculate the following variances for overall sales for the last period:
i) sales price variance;
ii) sales volume profit variance;
13. Mohamed Ltd manufactures special meat pies, which it sells in bulk to delicatessen shops. The
only variable cost is raw materials, which consists of three types of raw meat. The standard cost
of the raw materials used in the manufacture of each 100 kilograms of special meat pie is as
follows:

Raw Material Kilograms Standard Price per Kilogram

in Tshs.
Type A 25 2
Type B 60 3
Type C _40 4

Total Input 125

Normal Loss (20% of Input) (25)
Output 100

In preparing its budget for 2014, the company assumed that there would be a market in Tanzania
for 125,000 kilograms of special meat pie and that Mohamed’s product would have a 40% share
of this market. The budget also assumed a selling price of Tshs.6 per kilogram for Company’s
product. However, during 2014 both Mohamed and its competitors were adversely affected by
diminishing consumer confidence in meat products. The actual total market size was only
110,000 kilograms of special meat pie (instead of the anticipated 125,000 kilograms), and
Mohamed sold only 33,000 kilograms of its product.
The Managing Director of the company recently explained how his company attempted to
respond to the difficulties which it faced in 2014: “First, we reduced our selling price from Tshs.6
to Tshs.5.90. This was a modest price reduction in comparison with those of our smaller
competitors. Second, we took advantage of falling market prices for some of the types of meat
which we use as raw material for our product. With benefit of hindsight, we should perhaps have
done more to increase consumers ‘confidence in the safety and quality of meat products in
general and our own product in particular”.
The actual raw materials used by Mohamed Ltd in 2014 were as follows:
Raw Material Kilograms Actual Price per Kilogram
Tshs.
Type A 8,800 Tshs.1.7
Type B 19,200 Tshs.3
Type C 12,000 Tshs.4
Total Input 40,000
The company had no opening or closing stocks of raw materials or finished product.
REQUIRED:
Calculate:

(a) Raw materials price; raw materials mix and raw materials yield variances.
(b) Sales Price and Sales Volume Variances NBAA 2016

14. Hickson Plc manufactures high quality wooden doors from domestic Mkongo tree. The company
is based in Dar es salaam and was founded in 2016. In the beginning the company experienced
robust growth and made significant profits but this has changed during the recent period the
company almost went out of business. In the past two years, Hickson Plc has seen an increase in
its business and based on the company’s prior experience, the directors are keen to ensure that
costs are tightly controlled.
The following details relating to the most recent financial period are available:
Standard cost card for one wooden door:
Direct materials
➢ Mkongo Wood: 1.75 square metres @ TZS 22,000 per square metre 38,500
➢ Door Iron nails (dowels):16 @ TZS 250 each 4,000
Direct labour: 0.75 hours @ TZS 20,000 per hour 15,000
Variable production overhead: 0.75 hour @ TZS 4600 per direct labour hour 3,450
fixed production overhead: @ TZS 5100 per door 5,100
Total 66,050

The company budgeted to produce 10,000 Wooden doors during the period.
Actual results from production of 9,500 Wooden doors:
Direct materials
➢ Mkongo Wood (17,100 square metres) 375,345,000
➢ Door Iron nails (dowel)s (159,600 nails) 41,496,000
Direct labour (6,650 hours) 139,650,000
Variable overhead 29,925,000
fixed overhead 50,100,000
Required:
using the information provided above:
i) Calculate all variances in as much detail as the information permits.
ii) Outline TWO possible reasons to explain the variances that you have calculated at (i) above.