Question Tag: Standard Costing

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  • 15 Marks

PM – Nov 2014 – L2 – Q6 – Standard Costing and Variance Analysis

Reconcile budgeted and actual gross profits for GOODLAND Limited, including variance calculations.

GOODLAND Limited produces and sells a single product. The company adopts a standard absorption costing system and absorbs overheads on the basis of direct labour hours. Presented below are the standard cost details and selling price for a single unit of the product:

It has been estimated that the production and sales for the month would be 2,000 units. However, the estimated production for the month has been used as a basis for determining the fixed overhead absorption rate.

The actual results for the month are as follows:

Required:

Prepare a statement that reconciles the budgeted gross profit with the actual gross profit for the month with a detailed computation of all the variances involved. (15 Marks)

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  • 20 Marks

PM – Nov 2014 – L2 – Q2 – Standard Costing and Variance Analysis

Calculate various cost and sales variances, including an operating statement for Ibek Limited.

Ibek Limited manufactures a standard product and operates a system of variance accounting using a fixed budget.

As a newly appointed Management Accountant, you are responsible for preparing the monthly operating statements.

Extracts from the budget for the standard product cost and actual data for the month ended 31 December 2013 are given below:

Budgeted and Standard Cost Data:

  • Budgeted sales and production for the month: 20,000 units
  • Standard cost for each unit of product:
Item Details
Direct materials: A: 10 kg at N2 per kg
B: 5 kg at N10 per kg
Direct wages 5 hours at N6 per hour
Fixed overhead Absorbed at 200% of direct wages
  • Budgeted sales price has been calculated to give a margin of 20% of sales price.

Actual Data for the Month Ended 31 December 2013:

  • Production: 19,000 units sold at a price of 15% higher than that budgeted
  • Direct materials consumed:
Item Quantity Cost per kg
Material A 192,000 kg N2.40
Material B 96,000 kg N9.40
  • Direct wages incurred: 92,000 hours at N6.40 per hour
  • Fixed production overhead incurred: N580,000

Required:

(a) Prepare the operating statement for the month ended 31 December 2013. (3 Marks)

(b) Calculate the following variances: i. Direct material cost variance (5 Marks)
ii. Direct labour variances (5 Marks)
iii. Overhead variances (3 Marks)
iv. Sales variances (4 Marks)

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  • 20 Marks

PM – May 2017 – L2 – SA – Q4 – Standard Costing and Variance Analysis

Calculate budgeted profit and perform variance analysis for Dabens Nigeria's job costing system.

  1. Dabens Nigeria Limited’s job costing system includes two direct cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products based on standard direct manufacturing labor hours (SDMLH). At the beginning of 2016, Dabens adopted the following standards for manufacturing costs and sales:
    S/N Cost Details Input Cost per Output Unit (N)
    1 Direct Materials 3 kg at N500 1,500
    2 Direct Manufacturing Labor 5 hours at N200 1,000
    3 Manufacturing Overhead: Variable N120 per SDMLH 600
    Manufacturing Overhead: Fixed N160 per SDMLH 800
    4 Unit Manufacturing Cost 3,900
    5 Standard Profit Margin 1,300
    6 Standard Selling Price 5,200

    The denominator level for total manufacturing overhead per month in 2016 is 40,000 direct manufacturing labor hours. Dabens’ flexible budget for January 2016 was based on this denominator level. January records show the following data:

    • Direct materials purchased: 25,000 kg at N520 per kg
    • Direct materials used: 23,100 kg
    • Direct manufacturing labor: 40,100 hours at N190 per hour
    • Total actual manufacturing overhead (fixed and variable): N12,000,000
    • Actual production/sales: 7,800 output units
    • Actual selling price: N5,350

    The proportion of actual variable and fixed overhead costs is consistent with the standard.

    Required:

    a. Calculate the budgeted profit of the company for January 2016.
    (2 Marks)

    b. Calculate the following variances for January 2016:

    • i. Direct material variances
    • ii. Direct manufacturing labor variances
    • iii. Variable manufacturing overhead variances
    • iv. Fixed manufacturing overhead variances
    • v. Sales variances
      (10 Marks)

    c. Prepare a statement reconciling the actual profit with the budgeted profit.
    (8 Marks)

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  • 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.

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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  • 12 Marks

MI – Nov 2020 – L1 – SB – Q4b – Basic Variance Analysis

Calculate material and labour variances for product AB, and list possible causes of each variance.

b. ABC maintains the following standard cost card for product AB:

Item Standard Quantity Standard Price Total Cost (N)
Direct Material A 3kg @ N8 per kg N24
Direct Material B 5kg @ N6 per kg N30
Direct Labour 2hrs @ N24 per hr N48
Variable Overhead 2hrs @ N9 per hr N18
Total Standard Cost N120

Actual Results for the Period:

  • Actual production: 11,800 units
  • Direct material A: 35,800kg @ N7.5 per kg = N268,500
  • Direct material B: 62,000kg @ N7 per kg = N434,000
  • Direct labour: 24,500 hours @ N25 per hour = N612,500
  • Variable overhead: 24,500 hours @ N9 per hour = N220,500

Required:
i. Calculate the following variances:

  • Material price
  • Material usage
  • Total material
  • Labour rate
    (9 Marks)

ii. List TWO possible causes of each of the variances in (i) above. (3 Marks)

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  • 8 Marks

MI – Nov 2020 – L1 – SB – Q4a – Costing Techniques

Identify the purposes of standard costing systems and the types of standards used in management information.

a. Standard costing systems are widely used because they provide cost information for many different purposes.

Required:
i. Identify FIVE of such purposes. (5 Marks)
ii. State THREE types of standards. (3 Marks)

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  • 1 Marks

MI – May 2018 – L1 – SA – Q7 – Costing Techniques

Features of standard cost.

Which of the following is NOT a feature of standard cost?
A. Estimated
B. Predetermined
C. Actual
D. Basis for later comparison
E. Developed from historical data

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q9 – Basic Variance Analysis

Calculate the total material variance for product TU.

STUV is into production of a single product TU. Standard material cost per unit is 2kg @₦500 per kg. Actual production during the period is 5,000 units. Using 1.95kg purchased at the rate of ₦510 per kg. What is the total material variance?

A. ₦125,000 (F)
B. ₦97,500 (A)
C. ₦97,500 (F)
D. ₦27,500 (F)
E. ₦27,500 (A)

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  • 20 Marks

MI – Nov 2022 – L1 – SB – Q3 – Costing Methods

Preparation of a standard cost card for Beta's product based on given rates

The details below relate to a product (BETA) and are to be used in the revision of its standard cost:

Item Standard Price/Rate
Material
30kg of B35 ₦200/kg
50 units of K010 ₦50/unit
20 units of K035 ₦100/unit
Direct Labour
Machine Operations: 50 hours ₦120/hour
30 hours ₦105/hour
27 hours ₦80/hour
Packaging: 12 hours ₦96/hour

Production Overhead:

  • Labour hour rate: ₦9/hour
  • Machine hour rate: ₦7/hour

Departments X, Y, and Z are for operations while department P is for packaging. The batch quantity is 200, and the revision date is April 30, 2020.

Required:
Prepare a STANDARD COST CARD for the product (Beta).

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  • 1 Marks

MI – Nov 2019 – L1 – SA – Q3 – Costing Techniques

This question asks to identify the standard that assumes no wastage or machine breakdown in perfect operating conditions.

A standard that can be attained under the perfect operating conditions with no allowance for wastages, idle time and machine breakdown is known as:
A. Current Standard
B. Regular Standard
C. Ideal Standard
D. Attainable Standard
E. Basic Standard

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  • 10 Marks

MA – April 2022 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 15 Marks

MA – May 2017 – L2 – Q5 – Standard costing and variance analysis

Prepare a statement reconciling budgeted profit with actual profit, showing individual variances in detail.

You are the Management Accountant of ABS Limited. The following computer printout shows details relating to June 2017.

Description Actual Budget
Sales volume (units) 4,900 5,000
Selling price per unit (GH¢) 11.00 10.00
Production volume (units) 5,400 5,000
Direct materials:
– Quantity (kg) 10,600 10,000
– Price per kg (GH¢) 0.60 0.50
Direct labour:
– Hours per unit 0.55 0.50
– Rate per hour (GH¢) 3.80 4.00
Fixed overhead:
– Production (GH¢) 10,300 10,000
– Administration (GH¢) 3,100 3,000

ABS Limited uses a standard absorption costing system. There was no opening or closing work-in-progress.

Required:

Prepare a statement that reconciles the budgeted profit with the actual profit for June 2017, showing individual variances in detail. (15 marks)

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  • 20 Marks

IMAC – MAR 2023 – L1 – Q5 – Budgeting | Cost Segregation and Estimation

Explain cost estimation in budgeting, prepare sales and production budgets, and calculate variable and fixed overheads using the high-low method.

a) Cost estimation techniques play an important role in budget preparation.

Required:
Explain the statement above. (3 marks)

b) Obsaw Ltd is in the process of preparing budgets for the year 2021. Based on past experience, the following trend equation has been developed in the year 2019 for the estimation of quarterly sales:

S = 21,900 + 900Q
Where, S = quarterly sales in units
Q = time period (Quarter I of year 2019 is time period 1)

The following set of seasonal variation index values has been derived using a multiplicative model, based on year 2019 actual sales:

Quarter of the calendar year Q1 Q2 Q3 Q4
Seasonality -30% -10% +30% +10%

The management expects that the above trend and seasonal effect will continue until year 2023.
The company’s policy is to maintain a finished goods inventory of 20% of the demand for the following month. Monthly sales in each quarter are evenly distributed.

Required:
i) Prepare the quarterly sales budget (in units) for the calendar year 2021. (4 marks)
ii) Prepare the quarterly production budget (in units) for the calendar year 2021. (3 marks)

c) Obsaw Ltd recorded the highest and the lowest production overheads (POHs) during the year 2020 as follows:

Production (units) POHs (GH¢ million)
Highest 37,000
Lowest 18,000

POHs are expected to increase by 10% per year and fixed production overheads are absorbed to products based on the budgeted production.

Required:
i) Using the high-low method, prepare the quarterly variable production overheads budget for the year 2021. (Use the production budget in b) ii) above.) (3 marks)
ii) Calculate the fixed production overheads absorption rate per unit for the year 2021. (2 marks)

d) Explain how standard costs for material and labour might be compiled. (5 marks)

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  • 20 Marks

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

Discuss tasks suitable for piece rate and hourly rate payment systems and compute labor variances and standard costing variances.

a) Employees may be paid either using piece rate or hourly rate.

Required:
In reference to the statement above, state THREE (3) tasks/jobs that:
i) Piece rate may be used. (3 marks)
ii) Hourly rate may be used. (3 marks)

b) Krenkren enterprise uses the hourly rate to pay her employees. The current rate is GH¢6 per hour. However, employees are paid 1.5 times for each overtime hour worked. Each employee is to work a minimum of 40 hours a week without a guaranteed payment. Any extra hour will attract overtime rate.

Extract from the time sheet for a week has been provided below:

Name Staff Number Hours worked
Kwame Sarfo H 1356 56
John Addae H 3456 38
Thomas Appia F 2254 48
Rose Danso F 8645 50

Required:
Calculate the basic pay for each of the staff. (9 marks)

c) The following standard costs apply to the manufacture of a product by Pontir Ltd:

  • Standard weight to produce one unit: 12 kgs
  • Standard price per kg: GH¢9
  • Standard hours to produce one unit: 10
  • Standard rate per hour: GH¢4

Actual production and costs for one accounting period were:

Cost Element Actual Usage Actual Cost (GH¢)
Material 3,770 kgs 35,815
Labour 2,755 hours 11,571

The actual output was 290 units.

Required:
Calculate relevant material and labor cost variances and present these in a format suitable for presentation to the management of Pontir Ltd. (5 marks)

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  • 20 Marks

IMAC – Nov 2021 – L1 – Q5 – Budgeting | Forecasting

Analysis of a regression equation related to absenteeism, seasonal variation in production output, and variance analysis for overheads.

a) A large manufacturing company is investigating the cost of sickness amongst production workers who the company has employed for more than one year. The following regression equation, based on a random sample of 50 for such production workers, was derived for 2018:

y=15.6−1.2xy = 15.6 – 1.2x

where yy represents the number of days absent in a year because of sickness and xx represents the number of years’ employment with the company.

Required: i) Explain the meaning of each component of the regression equation. (2 marks)
ii) Predict the number of days of absence through sickness to be expected of an employee who has been with the company for eight years. (2 marks)
iii) Explain TWO (2) limitations or problems of using this equation in practice. (4 marks)

b) A statistician is carrying out an analysis of a company’s production output. The output varies according to the year’s season, and, from the data, she has calculated the following seasonal variations in units of production:

QUARTER 1 2 3 4
Year 1 +11.2 +23.5
Year 2 -9.8 -28.1 +12.5 +23.7
Year 3 -7.4 -26.3 +11.7

Required: i) Calculate and explain the average quarterly variation for each quarter. (5 marks)
ii) If the trend output in the 4th Quarter of Year 3 is expected to be 10,536 units, what is the forecast output? (2 marks)

c) KK Ltd operates a standard absorption costing system and has provided the following costs data in relation to its prime product, Qwikpass:

Standard Cost Card:

GH¢
Direct Material 4kg @ GH¢3/kg 12
Direct Labour 3hrs @ GH¢5/hr 15
Variable Overheads 3hrs @ GH¢3/hr 9
Fixed Overheads 3hrs @ GH¢2 6
Total Cost per Unit 42

Budgeted Units: 6,000

Actual Results:

GH¢
Units produced 6,400
Direct Materials Purchased and used 32,000kg 144,000
Direct Labour 30,720hrs 199,680
Variable Overheads 138,240
Fixed Overheads 45,000
Total costs 526,920

Required: i) Compute the Variable Overheads Expenditure Variance. (1 mark)
ii) Compute the Fixed Overheads Expenditure Variance. (2 marks)
iii) Compute the Fixed Overheads Volume Variance. (2 marks)

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

a) Grains Dealers Ltd is in the business of buying farm produce in bulk from out-growers for onward sale to manufacturers. In view of the huge volumes of receipt and sale transactions, the company is unable to use the specific pricing method for valuing inventories. The company needs advice on the impact on profit of using the FIFO or Weighted Average methods of inventory valuation. The following data has been extracted for the month of October 2019 for use:

Inventory balance as at 01/10/19 was 800 units at GH¢4 per unit.

Date Purchases Sales
Quantity Price (GH¢)
05/10/2019 1,200 5.00
10/10/2019
12/10/2019 1,500 6.00
15/10/2019 1,800 7.25
18/10/2019
25/10/2019 2,400 8.00
28/10/2019

Additional information:
A physical inventory count on 31 October 2019 revealed a shortage of 200 units.

Required:
i) Prepare the inventory ledger showing the value of costs of inventory sold, and the closing inventory on the basis of the perpetual inventory valuation system under:

  • FIFO Method (6 marks)
  • Weighted Average Method (6 marks)

ii) Compute the profit for the month for each method in columnar form. (3 marks)

b) Explain the following as used in standard costing and variance analysis:
i) Ideal standard;
ii) Attainable standard; (5 marks)

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  • 20 Marks

IMAC – NOV 2019 – L1 – Q5 – Standard Costing and Variance Analysis

Calculate seasonal variation using moving averages and explain uses of standard costing.

Question:
FB Logistics has been clearing containers from the port of Tema over the past seven 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 engaged Cost Accountant, you have been provided with some past quarterly performance over a three-year period. Details of the performance are shown below:

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1 120 140 160 180
2 180 160 185 210
3 150 200 230 220

Required:
Using quarterly moving average, calculate the seasonal variation for the company. (15 marks)

b) Standards as used in performance measurement are norms or benchmarks set for comparison purposes in performance evaluation.

Required:
Explain FIVE (5) uses of standard costing. (5 marks)

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