# Pev question

I have been given this question and have absolutly no idea where to start ?.
Any help is much appreciated.

the standard cost for one widget is
Quantity Unit Total
Direct materials 3kg £6 £18
direct labour 0.5 hrs £8 £4
fixed overheads 0.5 hrs £50 £25
_______
£47

budgeted monthly production is 8000 widgets
actual production is 10000 widgets
28500 kgs material were purchased for £176700
5300 hrs were worked at a cost of £8.10 per hr
overheads were absorbed on a direct labour hour basis
actual fixed production overheads were £212000

calculate :
the actual price of material per kg
standard cost of actual production using absorbtion costing
standard cost of actual production using marginal costing
the materials price and usage variances
the labour rate and efficiency variances
the fixed overhead expenditure, capacity, volume and efficiency variance

then reconcile the standard absorbtion cost of actual production with the actual cost
reconcile the standard marginal cost

• Re: Pev

Hello

Just to find out, have you done Pev in the past? if so do you know the difference between absorption costing and marginal costing? it is good to know the differences before going through with the question given.

Just a quick clue,
Budgeted monthly production is 8000 widget * £6.00 = 48000
Actual Material price cost is £176700/28500 = £6.20
Therefore the budgeted material cost is =£6.00

Hope this help
• Font Of All Knowledge Posts: 2,034Registered, Moderator

the standard cost for one widget is

fixed overheads 0.5 hrs £50 per hour

Budgeted production 8000 widgets
so budgeted hours 8000 widgets x 0.5 hrs per widget = 4,000 hours

4,000 hours @ £50 per hour = £200,000
Sandy
[email protected]om
www.sandyhood.com
• Font Of All Knowledge Posts: 2,034Registered, Moderator
standard cost of actual production using absorption costing

standard cost of actual production using absorption costing

standard absorbtion cost of actual production
standard cost of one widget £47
x units produced 10,000
standard cost of actual production using absorption costing = £470,000
Sandy
[email protected]
www.sandyhood.com
• Font Of All Knowledge Posts: 2,034Registered, Moderator
standard cost of actual production using marginal costing

standard cost of actual production using marginal costing

standard marginal cost of actual production
standard marginal cost of one widget £22
x units produced 10,000
standard cost of actual production using absorption costing = £220,000
Sandy
[email protected]
www.sandyhood.com
• NAJC wrote: »
I have been given this question and have absolutly no idea where to start ?.
Any help is much appreciated.

the standard cost for one widget is
//////////////////..............Quantity..............Unit..........Total
Direct materials.................3kg...................£6............£18
direct labour.....................0.5 hrs..............£8.............£4
_______
.............................................................................£47
```  budgeted monthly production is 8000 widgets
actual production is 10000 widgets
28500 kgs material were purchased for £176700
5300 hrs were worked at a cost of £8.10 per hr
overheads were absorbed on a direct labour hour basis
actual fixed production overheads were £212000

calculate :

Each unit will absorb £25 in overheads
Therefore budgeted production = 8000 units x £25 = £200,000

[highlight]2 the actual price of material per kg[/highlight]

Actual material price paid divide by actual material weight
£176,700 / 28,500kg = £6.20 per kg

[highlight]3 standard cost of actual production using absorption costing[/highlight]

standard cost per unit is £47
Actual production is 10,000 units
Therefore 10,000 x £47 = £470,000

[highlight]4 standard cost of actual production using marginal costing[/highlight]
standard marginal cost = (18+4) = £22
std cost of Actual Marginal costing = 10,000 units x £22 = £220,000

[highlight]5 the materials price and usage variances[/highlight]

Price Variance
budgeted price =£6
Actual price paid = £6.20 &#8211; more then budgeted therefore ADVERSE
(£6.20 - £6.00) x 28,500 = £5700 Adverse

Usage Variance
Budgeted usage  3 kg (3 x 10,000 = 30,000 kg)
Actual Usage = 28,500 kg Less then budgeted therefore FAVOURABLE
(30,000 kg &#8211; 28,500kg) x £6 = £9,000 Favourable

[b]Double Check
Flex Material budget at 10,000 units (10,000 x £18)=£180,000 expected to pay
£180,000 less £176,700 = £3,300 FAVOURABLE (paid less then expected)
Price Variance plus Usage variance = Total Variance
£5,700 (A) + £9,000 (F) = £3,300 FAVOURABLE = AGREED!  [/b]

[highlight]6 the labour rate and efficiency variances[/highlight]

Labour Rate Variance

Expected to pay per hr £8.00
Actual paid per hr £8.10  more then expected therefore ADVERSE
(£8.10 &#8211; £8.00) X 5300 HRS = £530 ADVERSE

Efficiency Variance

Expected to use hrs to produce 10,000 units = 10,000 x 0.50 = 5000 hrs
Actual hrs used to produce 10,000 units = 5300 hrs- more then expected ADVERSE variance
(5300-5000) x £8.00 = £2,400 ADVERSE

[b]Double Check
Flex Labour budget at 10,000 units (10,000 x £4)=£40,000 expected to pay
£40,000 less (5300 Hrs X £8.10= £42930= £2,930 ADVERSE (paid more then expected)
Rate Variance Efficiency variance = Total Variance
£530 (A) + £2,400 (A) = £2,830 ADVERSE = AGREED!   [/b]

[highlight]7 the fixed overhead expenditure, capacity, volume and efficiency variance[/highlight]

£200,000 &#8211; £212,000 = £12,000 ADVERSE

FO Volume (Production) Variance
Budgeted Hrs = 8000units  * 0.5 hr = 4000 hrs
Expected Hrs = 10,000 units * 0.5Hrs = 5000 hrs
(5000 &#8211; 4000) x £50 = £50,000 FAVOURABLE (more then budgeted)

FO Capacity Variance
Budgeted Hrs = 8000 units * 0.5 hr = 4000 hrs
Actual Hrs used to Absorb overheads = 5300 hrs
(5300 &#8211; 4000) x£50 = £65,000 FAVOURABLE

FO efficiency variance
Expected Hrs = 10,000 units * 0.5Hrs = 5000 hrs
Actual Hrs used to Absorb overheads = 5300 hrs
(5300 -5000) X£50 = £15,000 ADVERSE

[b][highlight]Double Check
Capacity variance plus Efficiency variance = Volume (production) Variance
£65,000 (F) + £15,000 (A) = £50,000 (F) = Agreed[/highlight]

Double Check
Flex Fixed Overheads budget at 10,000 units (10,000 x £25)=£250,000 expected to absorb Overheads
Total Fixed Overhead Variance = £250,000 - £212,000 = £38,000 FAVOURABLE

Expenditure Variance less Volume (production) variance = Total Fixed Overhead Variance
£12,000(A) + £50,000 (F) = £38,000 = Agreed![/b]

[highlight]8 [b]reconcile the standard absorption cost of actual production with the actual cost [/b][/highlight]

£		£		£
Standard Cost of 10,000 units   						470,000

Material Price Variance					 5,700 (A)
Material Usage Variance			9,000 (F)

Labour Rate Variance					    530 (A)
Labour Efficiency Variance				2,400 (A)

Fixed Overheads Expenditure variance			12,000 (A)
FO Volume (production) variance		50,000(F)

Total Variances				59,000(F)	20,630 (A)	38,370 (F)

Actual Production Cost							431,630

Material				176,700
Labour (5300 x 8.10)			  42,930

[highlight]9 [b]reconcile the Standard Marginal cost of actual production with the actual cost [/b][/highlight]

£		£		£
Std Marginal Cost of 10,000 units   						220,000

Material Price Variance					 5,700 (A)
Material Usage Variance			9,000 (F)

Labour Rate Variance					    530 (A)
Labour Efficiency Variance				2,400 (A)

Total Variances				9,000(F)	8,630 (A)	         370 (F)

Actual Production Cost							       219,630

Material				176,700
Labour (5300 x 8.10)			  42,930				219,630

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