Topic: Standard Costing and Variance Analysis

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  • 5 Marks

MA – Nov 2024 – L2 – Q4b – Standard Costing and Variance Investigation

Explanation of the use of standard costing in decision-making and key factors to consider before investigating variances.

Standard costing has been employed by organizations as a control technique to analyze the deviation of results from those that are expected.

Required:

i) Explain TWO ways managers have effectively deployed standard costing as a tool in decision-making analysis.

ii) Explain THREE key factors a manager should consider before deciding to institute an investigation into reported variances.

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  • 10 Marks

MA – Nov 2024 – L2 – Q3a – Flexible Budget and Variance Analysis

Preparation of a flexible budget and calculation of sales, material, and labour variances.

The budget and actual income statement of Shatta Company PLC for the month of April have been presented in the table below:

Budget Actual
Output (production and sales) 10,000 9,000
GH¢ GH¢
Sales Revenue 175,000 162,000
Raw Materials (80,000) (100,000 meters) (64,380) (74,000 meters)
Labour (35,000) (5,000 hours) (30,960) (4,300 hours)
Fixed Overheads (35,000) (36,225)
Operating Profit 25,000 30,435

Required:

i) Prepare a flexible budget for Shatta Company PLC.

ii) Calculate the following variances using the marginal costing system:

  • Sales (price, volume)
  • Material (price and usage)
  • Labour (rate and efficiency)

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  • 4 Marks

ICMA – Nov 2024 – L1 – Q3d – Fixed Overhead Volume Variance

Explains the concept of fixed overhead volume variance and lists potential causes for such variances.

Fixed Overhead Volume Variance
Fixed overhead volume variance (FOVV) measures the difference between the actual fixed overheads incurred and the fixed overheads that should have been incurred at the actual level of activity.

Required:
Explain fixed overhead volume variance and TWO possible causes of such variances.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q3c – Material and Labour Variances

Calculates material and labour variances based on given actual and standard cost data.

Material and Labour Variances
The data below relates to Agbamame Enterprise for its flagship product, “Herb of Life”:

Standard Cost Card – Per Unit of Herb of Life

Description Cost (GH¢)
Direct materials 5 kg at GH¢4 per kg = GH¢20
Direct labour 4 hours at GH¢15 per DLH = GH¢60
Variable overhead 4 hours at GH¢20 per DLH = GH¢80
Fixed overhead GH¢50 per unit

Budgeted production: 600 units
Actual sales and production: 550 units

Actual cost of:

Actual Costs Cost (GH¢)
Labour (1650 hours) 16,500
Materials (1650 kg) 5,775
Fixed overhead 15,000
Variable overhead 13,275

Data shows that 5% of labour hours paid for was idle, and 10% of materials bought was in stock at the end of the period.

Required:
i) Calculate the material variances.
ii) Calculate the labour variances.

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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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  • 15 Marks

PM – May 2017 – L2 – SA – Q6 – Standard Costing and Variance Analysis

Advise on optimal replacement timing for AL Limited's machine based on cost-benefit analysis.

AL Limited, a manufacturing company based in Aba, produces a popular mortar coloring agent called Hadtone. Hadtone is packaged in five-litre cartons, sold at ₦300 each. Estimated maximum annual demand is 300,000 cartons, justifying one processing machine, replaced every three years though it has a four-year productive life.

  • Machine Details: Initial productive capacity aligns with maximum demand, decreasing by 15,000 units per annum. Maintenance costs in year one are ₦300,000, rising by ₦50,000 each subsequent year. Variable costs per carton (excluding maintenance) are ₦200.
  • Machine Depreciation: Straight-line method. Sale proceeds after one year are ₦8,000,000, reducing by ₦3,000,000 each following year.
  • Machine Cost Increase: Recent machine cost rise to ₦12,000,000 prompts reconsideration of replacement policy to optimize cash flow. Assume all costs/revenues except initial payment occur year-end; initial cost paid at purchase.

Requirements:

a. Calculate replacement frequency based on maximum capacity usage, including supporting calculations. Assume a 10% cost of capital. (12 Marks)

b. Itemize key assumptions made in the calculations. (3 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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  • 20 Marks

PM – Nov 2015 – L2 – Q2 – Standard Costing and Variance Analysis

Calculate material price and usage planning and operational variances for wheat used in baking cake and bread, and discuss the benefits of these variances.

Pestel Limited produces cake and bread which it supplies to a major supermarket in
Abuja. It holds no inventories because it adopts the Just-In-Time (JIT) system.
The standard cost of the wheat used in baking the products is N200 per kg. Each piece
of cake uses 0.5kg of wheat while each loaf of bread uses 2kg of wheat.
The production levels for cake and bread for the month of October were as follows:

The actual cost of wheat in October was N232 per kg. 496,000kg of wheat was used to
bake the bread and 190,000kg was used to bake the cake.
The global prices of wheat increased by 18% in the month of October.

At the beginning of the month, the supermarket group made an expected request for an
immediate shape change to the cake resulting in 5% more wheat than previously
required. This change also brought about production delays which caused a reduction in
production by 20,000 units of cake in that month. The production director is given the
task of purchasing relevant input materials and any production request which occur,
although he does not take responsibility for setting standard costs.
Required:

(a) Compute the following variances for the month of October for each product and in total:

(i) Material price planning variances, (4 Marks)

(ii) Material price operational variances. (4 Marks)

(iii) Material usage planning variances, (4 Marks)

(iv) Material usage operational variances (4 Marks)

(b) Discuss the benefits of planning and operational variances to a management accountant. (4 Marks)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q4 – Accounting for Overheads | Standard Costing and Variance Analysis

Prepare overhead analysis sheet and calculate standard costing variances for Kack Ltd.

a) The following information relates to the first quarter of operations for Kack Ltd:

Machining Assembling Finishing Stores
Area occupied (sq. meters) 12,000 18,000 8,000 2,000
Plant at cost (GH¢000) 600 100 200 100
Number of employees 200 400 100 100
Direct labour hours 16,000 30,000 4,000 –
Direct wages (GH¢) 32,000 60,000 8,000 –
Machine hours 32,000 4,000 4,000 –
Number of requisitions on stores 3,000 1,000 1,000

Allocated costs:

Costs Machining (GH¢) Assembling (GH¢) Finishing (GH¢) Stores (GH¢) Total (GH¢)
Indirect wages 16,000 15,000 14,000 10,000 55,000
Indirect materials 3,000 2,400 6,000 10,000 21,400
Maintenance 3,000 6,000 1,000 – 10,000
Power 4,000 4,000 2,000 – 10,000
Rent 6,000 9,000 4,000 1,000 20,000
Business rates 6,000 9,000 4,000 1,000 20,000
Insurance on building 6,600 9,900 4,400 1,100 22,000
Lighting and heating 7,200 10,800 4,800 1,200 24,000
Depreciation on plant 12,000 2,000 4,000 2,000 20,000
Wage-related costs 8,960 16,800 2,240 – 28,000
Factory administration 3,500 7,000 1,750 1,750 14,000
Insurance on plant 10,800 1,800 3,600 1,800 18,000
Cleaning of factory premises 3,600 5,400 2,400 600 12,000
Total 90,660 99,100 54,190 30,450 274,400

(10 marks evenly spread)

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

a) The monthly sales of Danamo Company Limited have been given as follows:

Monthly Sales (GH¢’000) Moving Total (GH¢’000)
April 150
May 140
June 160
July 180
August 200
September 190
October 220
November 230
December 250

Required:
i) Using the three-month moving average, calculate the trend. (3 marks)

ii) Using the line of best fit, estimate the sales of January, February, and March of the following year. (12 marks)

b) State and explain FIVE (5) sources of information that may be considered in setting standard prices for materials in Management Accounting. (5 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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