- 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.
Question
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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