- 15 Marks
PM – Nov 2015 – L2 – Q5 – Standard Costing and Variance Analysis
Calculate material, labour, and variable overhead variances, and discuss causes for variances in KOMERE Limited’s cost system.
Question
KOMERE Limited operates a Standard Costing System. Below are the standard and actual costs for October 2015:
Standard Cost Information:
Direct Material:
- A: 20 kg at N100 per kg = N2,000
- B: 30 kg at N80 per kg = N2,400
Direct Labour:
- Skilled: 10 hours at N40 per hour = N400
- Unskilled: 10 hours at N25 per hour = N400
Variable Overhead Cost:
- 10 hours at N20 per hour = N200
Total Standard Cost per unit = N5,250
Actual Results:
- Direct Material:
- Material A: 105,000 kg purchased at N10,290,000; 99,000 kg consumed
- Material B: 148,000 kg purchased at N11,988,000; 144,000 kg consumed
- Direct Labour:
- Skilled Labour: 56,000 hours at N2,352,000
- Unskilled Labour: 56,000 hours at N1,344,000
- Variable Overhead: N1,064,000
- Actual Production: 4,800 units
Required:
(a) Calculate all the relevant variances. (8 Marks)
(b) What are possible causes of the variances computed? (7 Marks)
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