- 20 Marks
IMAC – NOV 2019 – L1 – Q4 – Accounting for Inventory and Labour
Calculate material variances, explain time and piece rate, and compute direct and indirect labour costs
Question
Walata Ltd manufactures and sells a unique anti-cold formula called the Magic Ball. The product is produced from a combination of two ingredients; R and Q with the following details:
Standard quantity per unit:
- Q: 3kg
- R: 2kg
Standard prices:
- Q: GH¢2.50
- R: GH¢4.00
For the quarter just ended, the following results were recorded:
- Actual production: 2,000 units
| Material | Quantity purchased and used | Price per Kilogramme |
|---|---|---|
| Q | 4,800 kg | GH¢4.25 |
| R | 5,400 kg | GH¢2.20 |
Required:
i) Calculate the price variance for each material. (3 marks)
ii) Calculate the usage variance for each material. (3 marks)
b) Apagya Ltd has two product lines AB and CD. Time rate and piece rate labour rewarding systems are used for AB and CD products respectively.
Required:
Explain the terms time rate and piece rate, clearly outlining their differences and giving examples of business settings where each could be applied. (4 marks)
c) AB Ltd operates a 40-hour weekly work regime and rewards labour for all overtime worked at time and one-half.
The wage rate is GH¢80 per hour.
The following details are recorded for the month of October 2019 for an employee (Adamu):
| Week | Hours Worked |
|---|---|
| 1 | 36 |
| 2 | 48 |
| 3 | 45 |
| 4 | 46 |
Required:
i) Compute the total direct labour costs for Adamu for the month of October 2019. (4 marks)
ii) Calculate the total indirect labour costs for Adamu for the month of October 2019. (4 marks)
d) Explain the treatment of overtime premium in accounting for labour costs. (2 marks)
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