Question Tag: Material Price Variance

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  • 20 Marks

MA – May 2020 – L2 – Q3 – Standard costing and variance analysis, Advanced variance analysis, Budgetary control

Calculate and analyze material price, usage, mix, and yield variances and discuss weaknesses in traditional budgeting.

Slab Processes (Ghana) Limited manufactures a single product. The product is manufactured in a single process, by combining three raw materials, A, B, and C.

For 2019, the standard cost of a litre of the product was established in the budget as follows:

Material Quantity (litres) Price per litre (GH¢) Standard cost (GH¢)
A 0.7 2 1.4
B 0.4 4 1.6
C 0.1 8 0.8
Total 1.2 3.8
Loss in process -0.2
Standard cost per litre of output 1.0 3.8

During one month in the year, 2,000 litres of finished products was the output from the process, and the actual direct material costs were as follows:

Material Quantity (litres) Cost (GH¢)
A 1,340 2,970
B 910 3,450
C 240 1,900
Total 8,320

Required:

a) Calculate the material price variance and the material usage variances for the period. (5 marks)

b) Analyze the operational usage variance into a materials mix and a materials yield variance. (6 marks)

c) Comment on the significance and usefulness of a materials mix and a materials yield variance, for management control purposes. (3 marks)

d) Describe briefly THREE (3) fundamental weaknesses in the traditional annual budgeting approach that exist regardless of the budgeting method that is used. (6 marks)

(Total: 20 marks)

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  • 20 Marks

IMAC – MAR 2024 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate daily variations using moving averages and explain interrelationships between material price and usage variances, and labor rate and efficiency variances.

a) BB Importers Ltd has been importing electrical gadgets through the port of Takoradi over the past ten years. Management is aware that the business has been facing seasonal fluctuations but there is no scientific basis for the determination of such variations that can be used to predict future revenue. As a newly recruited Cost Accountant, you have been provided with some past daily sales performance over a three-week period. Details of the sales performance are shown below:

Sales Monday Tuesday Wednesday Thursday Friday
Week 1 780 830 890 850 850
Week 2 880 930 990 950 950
Week 3 980 1030 1090 1050 1050

Required:
Using daily moving averages, calculate the daily variation for the company. (15 marks)

b) The reasons for variances might be connected, and two or more variances may arise from the same cause. For example, a favorable variance and an adverse variance might have the same cause.

Required:
Explain the interrelationships between:
i) Material price and usage variances (2.5 marks)
ii) Labor rate and efficiency variances (2.5 marks)

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  • 20 Marks

IMAC – NOV 2023 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Calculate closing inventory using FIFO and compute direct material price and usage variances for Prekese and Kakaduro.

a) The following data has been extracted from the books of ABC Ltd for the month of October 2023.

Date Description
2/10/2023 Bought 200 units @ GH₵100 per unit
5/10/2023 Bought 150 units @ GH₵120 per unit
8/10/2023 Issued 120 units
12/10/2023 Bought 100 units @ GH₵90 per unit
20/10/2023 Issued 140 units
24/10/2023 Bought 300 units @ GH₵150 per unit
28/10/2023 Issued 210 units

Required:
Using the FIFO method, calculate the value of the closing inventory. (10 marks)

b) Identify FOUR (4) pieces of information that can be seen on an invoice. (5 marks)

c) Preka body lotion is a product produced from the combination of two materials: prekese and kakaduro. Preka body lotion has a standard direct material cost as follows:

Material Quantity (kg) Cost per kg (GH₵) Total Cost (GH₵)
Prekese 6 15 90
Kakaduro 10 10 100

During period one, 1,000 units of Preka body lotion were manufactured, using 11,700 kilograms of prekese and 10,000 kilograms of kakaduro, costing GH₵98,600 and GH₵78,000 respectively.

Required:
Calculate the following variances for prekese and kakaduro:
i) The direct material price variance (2.5 marks)
ii) The direct material usage variance (2.5 marks)

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  • 20 Marks

IMAC – JULY 2023 – L1 – Q3 – Standard Costing and Variance Analysis

Discuss differences between private and public sector entities and calculate standard costing variances for materials, labour, and overheads.

a) Public Sector in Ghana includes the Metropolitan, Municipal and District Assemblies
(MMDA’s) and the Ministries, Departments and Agencies (MDA’s). The private sector
dominates in terms of numbers and are significantly different in operations from the public
sector.
Required:
In reference to the above statement, explain FOUR (4) key differences between a private
sector entity and a public sector entity. (10 marks)
b) Konka Ltd produces a product – “the telescope”.
Actual results for the period were:
Production: 430 units made
Materials: 1,075 kg were used.
1,200 kg of materials were purchased at a cost of GH¢17,700
Direct labour: 1,700 hours were worked at a cost of GH¢14,637
Variable production overheads expenditure: GH¢3,870.

The standard cost card for the product is as follows:
GH¢
Direct material 2 kg x GH¢15 30
Direct labour 4hrs x GH¢8.50 34
Variable overhead 4hrs x GH¢2.00 8
The cost card is based on production and sales of 450 units in each period.
The company values its inventories at standard cost.
Required:
Calculate the following variances for Konka Ltd:
i) Material price variance
ii) Material usage variance
iii) Labour rate variance
iv) Labour efficiency variance
v) Variable overhead expenditure variance
(10 marks)

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  • 20 Marks

IMAC – APRIL 2022 – L1 – Q5 – Standard Costing and Variance Analysis

Computation of variances for a product, derivation of a cost prediction formula using the high-low method, and explanation of seasonal variation models.

a) Magawa Ltd operates a standard variables costing system and manufactures a single product called “Magic Touch”.

The following quantities, costs and prices data have been extracted for the period just ended March 31, 2021 in respect of Magic Touch:

Standard cost card:

GH¢
Direct materials 15g at GH¢10/g = 150
Direct labour 8 hours at GH¢6/hour = 48
Variable overheads 8 hours at GH¢4/hour = 32
Standard contribution 25
Standard selling price per unit 255

Budgeted production units: 1,500

Actual results for the period ended March 31, 2021 were as follows:
Production and sales units 1,650
Selling price per unit GH¢278
Direct materials used 23,760g
Direct materials costs GH¢308,880
Direct labour hours worked 10,725
Direct labour costs GH¢85,800
Variable overheads GH¢68,000

Required: i) Compute the following variances for Magawa Ltd for the period ended March 31, 2021:

  1. Direct materials price variance. (1 mark)
  2. Direct materials usage variance. (1 mark)
  3. Direct labour rate variance. (1 mark)
  4. State ONE (1) possible reason for the material price variance calculated. (1 mark)
  5. State ONE (1) possible reason for the labour rate variance calculated. (1 mark)

b) The Valuation Department of a large firm of surveyors wishes to develop a method of predicting its total costs in a period. The following past costs and activity levels have been recorded.

Period Number of Valuations (V) Total Cost (TC) GH¢
1 420 82,200
2 515 90,275
3 425 82,900
4 500 90,000

Required: i) Derive a formula for the total cost model for a period. (4 marks) ii) Evaluate the usefulness of the high-low method. (4 marks)

c) The trend line on its own is not sufficient to make forecasts for the future. Estimates of the size of the ‘seasonal’ variation for each of the different seasons are needed. The seasonal variation is then used to adjust a forecast trend.

Required: Explain TWO (2) models used to estimate seasonal variations. (7 marks)

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  • 20 Marks

MA – May 2020 – L2 – Q3 – Standard costing and variance analysis, Advanced variance analysis, Budgetary control

Calculate and analyze material price, usage, mix, and yield variances and discuss weaknesses in traditional budgeting.

Slab Processes (Ghana) Limited manufactures a single product. The product is manufactured in a single process, by combining three raw materials, A, B, and C.

For 2019, the standard cost of a litre of the product was established in the budget as follows:

Material Quantity (litres) Price per litre (GH¢) Standard cost (GH¢)
A 0.7 2 1.4
B 0.4 4 1.6
C 0.1 8 0.8
Total 1.2 3.8
Loss in process -0.2
Standard cost per litre of output 1.0 3.8

During one month in the year, 2,000 litres of finished products was the output from the process, and the actual direct material costs were as follows:

Material Quantity (litres) Cost (GH¢)
A 1,340 2,970
B 910 3,450
C 240 1,900
Total 8,320

Required:

a) Calculate the material price variance and the material usage variances for the period. (5 marks)

b) Analyze the operational usage variance into a materials mix and a materials yield variance. (6 marks)

c) Comment on the significance and usefulness of a materials mix and a materials yield variance, for management control purposes. (3 marks)

d) Describe briefly THREE (3) fundamental weaknesses in the traditional annual budgeting approach that exist regardless of the budgeting method that is used. (6 marks)

(Total: 20 marks)

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  • 20 Marks

IMAC – MAR 2024 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate daily variations using moving averages and explain interrelationships between material price and usage variances, and labor rate and efficiency variances.

a) BB Importers Ltd has been importing electrical gadgets through the port of Takoradi over the past ten years. Management is aware that the business has been facing seasonal fluctuations but there is no scientific basis for the determination of such variations that can be used to predict future revenue. As a newly recruited Cost Accountant, you have been provided with some past daily sales performance over a three-week period. Details of the sales performance are shown below:

Sales Monday Tuesday Wednesday Thursday Friday
Week 1 780 830 890 850 850
Week 2 880 930 990 950 950
Week 3 980 1030 1090 1050 1050

Required:
Using daily moving averages, calculate the daily variation for the company. (15 marks)

b) The reasons for variances might be connected, and two or more variances may arise from the same cause. For example, a favorable variance and an adverse variance might have the same cause.

Required:
Explain the interrelationships between:
i) Material price and usage variances (2.5 marks)
ii) Labor rate and efficiency variances (2.5 marks)

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  • 20 Marks

IMAC – NOV 2023 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Calculate closing inventory using FIFO and compute direct material price and usage variances for Prekese and Kakaduro.

a) The following data has been extracted from the books of ABC Ltd for the month of October 2023.

Date Description
2/10/2023 Bought 200 units @ GH₵100 per unit
5/10/2023 Bought 150 units @ GH₵120 per unit
8/10/2023 Issued 120 units
12/10/2023 Bought 100 units @ GH₵90 per unit
20/10/2023 Issued 140 units
24/10/2023 Bought 300 units @ GH₵150 per unit
28/10/2023 Issued 210 units

Required:
Using the FIFO method, calculate the value of the closing inventory. (10 marks)

b) Identify FOUR (4) pieces of information that can be seen on an invoice. (5 marks)

c) Preka body lotion is a product produced from the combination of two materials: prekese and kakaduro. Preka body lotion has a standard direct material cost as follows:

Material Quantity (kg) Cost per kg (GH₵) Total Cost (GH₵)
Prekese 6 15 90
Kakaduro 10 10 100

During period one, 1,000 units of Preka body lotion were manufactured, using 11,700 kilograms of prekese and 10,000 kilograms of kakaduro, costing GH₵98,600 and GH₵78,000 respectively.

Required:
Calculate the following variances for prekese and kakaduro:
i) The direct material price variance (2.5 marks)
ii) The direct material usage variance (2.5 marks)

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  • 20 Marks

IMAC – JULY 2023 – L1 – Q3 – Standard Costing and Variance Analysis

Discuss differences between private and public sector entities and calculate standard costing variances for materials, labour, and overheads.

a) Public Sector in Ghana includes the Metropolitan, Municipal and District Assemblies
(MMDA’s) and the Ministries, Departments and Agencies (MDA’s). The private sector
dominates in terms of numbers and are significantly different in operations from the public
sector.
Required:
In reference to the above statement, explain FOUR (4) key differences between a private
sector entity and a public sector entity. (10 marks)
b) Konka Ltd produces a product – “the telescope”.
Actual results for the period were:
Production: 430 units made
Materials: 1,075 kg were used.
1,200 kg of materials were purchased at a cost of GH¢17,700
Direct labour: 1,700 hours were worked at a cost of GH¢14,637
Variable production overheads expenditure: GH¢3,870.

The standard cost card for the product is as follows:
GH¢
Direct material 2 kg x GH¢15 30
Direct labour 4hrs x GH¢8.50 34
Variable overhead 4hrs x GH¢2.00 8
The cost card is based on production and sales of 450 units in each period.
The company values its inventories at standard cost.
Required:
Calculate the following variances for Konka Ltd:
i) Material price variance
ii) Material usage variance
iii) Labour rate variance
iv) Labour efficiency variance
v) Variable overhead expenditure variance
(10 marks)

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  • 20 Marks

IMAC – APRIL 2022 – L1 – Q5 – Standard Costing and Variance Analysis

Computation of variances for a product, derivation of a cost prediction formula using the high-low method, and explanation of seasonal variation models.

a) Magawa Ltd operates a standard variables costing system and manufactures a single product called “Magic Touch”.

The following quantities, costs and prices data have been extracted for the period just ended March 31, 2021 in respect of Magic Touch:

Standard cost card:

GH¢
Direct materials 15g at GH¢10/g = 150
Direct labour 8 hours at GH¢6/hour = 48
Variable overheads 8 hours at GH¢4/hour = 32
Standard contribution 25
Standard selling price per unit 255

Budgeted production units: 1,500

Actual results for the period ended March 31, 2021 were as follows:
Production and sales units 1,650
Selling price per unit GH¢278
Direct materials used 23,760g
Direct materials costs GH¢308,880
Direct labour hours worked 10,725
Direct labour costs GH¢85,800
Variable overheads GH¢68,000

Required: i) Compute the following variances for Magawa Ltd for the period ended March 31, 2021:

  1. Direct materials price variance. (1 mark)
  2. Direct materials usage variance. (1 mark)
  3. Direct labour rate variance. (1 mark)
  4. State ONE (1) possible reason for the material price variance calculated. (1 mark)
  5. State ONE (1) possible reason for the labour rate variance calculated. (1 mark)

b) The Valuation Department of a large firm of surveyors wishes to develop a method of predicting its total costs in a period. The following past costs and activity levels have been recorded.

Period Number of Valuations (V) Total Cost (TC) GH¢
1 420 82,200
2 515 90,275
3 425 82,900
4 500 90,000

Required: i) Derive a formula for the total cost model for a period. (4 marks) ii) Evaluate the usefulness of the high-low method. (4 marks)

c) The trend line on its own is not sufficient to make forecasts for the future. Estimates of the size of the ‘seasonal’ variation for each of the different seasons are needed. The seasonal variation is then used to adjust a forecast trend.

Required: Explain TWO (2) models used to estimate seasonal variations. (7 marks)

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