Question Tag: Variances

a) Responsibility Accounting is a system of accounting in which costs are identified with persons who are primarily responsible for making decisions about the costs in question. Responsibility Accounting classifies cost under two main headings.

Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)

b) Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services. Accountants use the term full cost to mean more than a product’s manufacturing or production costs (including fixed manufacturing overhead).

Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)

c) Afram Ltd has just introduced a standard marginal costing system to assist in the planning and control of the production activities for its single product, Amino. The system became operational on 1 January 2022. The Functional Director responsible for cost and management accounting had a discussion with the Production Manager, and both have agreed on the following standard cost information to manufacture one unit of product, Amino.

Budgeted cost:

• Direct materials: 4kg @ GH¢1.75 per kg
• Direct labour: 2 hours @ GH¢10 per hour
• Variable overhead: 2 hours @ GH¢8.25 per hour.

Actual Results:
The actual results for January 2022 are as follows:

• Sales: 22,000 units yielding a total revenue of GH¢1,276,000
• Production: 23,000 units
• Direct Materials: 90,000 kgs at a cost of GH¢162,000
• Direct labour: 48,000 hours at a cost of GH¢576,000
• Variable overhead: GH¢350,000

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)