- 10 Marks
MA – Nov 2020 – L2 – Q3b – Standard Costing and Variance Analysis
Calculate various variances including sales volume contribution, price, mix, yield, labour rate, labour efficiency, and idle time variances for Zip Ltd.
Question
b) Zip Ltd, a premium food manufacturer, is reviewing its operations for a three-month period for 2019. The company operates a standard marginal costing system and manufactures one product, ZP, for which the following standard revenue and cost data per unit of product is available:
- Selling price: GH¢12.00
- Direct material A: 2.5 kg at GH¢1.70 per kg
- Direct material B: 1.5 kg at GH¢1.20 per kg
- Direct labour: 0.45 hours at GH¢6.00 per hour
- Fixed production overheads for the three-month period were expected to be GH¢62,500.
Actual data for the three-month period was as follows:
- Sales and production: 48,000 units of ZP were produced and sold for GH¢580,800
- Direct material A: 121,951 kg were used at a cost of GH¢200,000
- Direct material B: 67,200 kg were used at a cost of GH¢84,000
- Direct labour: Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of GH¢117,120
- Fixed production overheads: GH¢64,000
Required: Calculate the following variances:
i) Sales volume contribution and sales price variances
ii) Price, mix, and yield variances for each material
iii) Labour rate, labour efficiency, and idle time variances
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