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Osborne book Practice assessment 2 question 6

Hello,

I would be very grateful if someone could help me with this. I thought I understood this but clearly not.

Activity data items produced KG materials Cost

Budget 12,000 30,000 37,500
Actual 14,000 38,500 40,000
you need to calculate the following:

Standard direct material cost of production
Variances:
Material price
Material usage
Material cost

I calculated the standard direct material cost which is 43,750

It would help me if someone explain to me how to do it not just giving me the answers as I know what the answers should be just don't know how to get there.

Thank you in advance

Best Answer

Answers

  • jmhjmh Registered Posts: 42
    Thank you very much Peter.

    I am going to practice with other examples to see if I do understand it.

    Once again thank you :)
  • PeterCPeterC Registered, Tutor Posts: 150
    You're welcome
  • jmhjmh Registered Posts: 42
    Hello Peter,

    I was wondering if you can help me with something else. I am struggling with the calculation for labour efficiency variance. I can do the labour rate variance without a problem.


    Items produced Labour hours cost

    Budget 24300 8100 170100
    Actual 23700 8000 165900

    I think I am right in saying that the actual labour hours use at standard rate = 168,000?
    I looked at the case in the Osborne book tutorial and getting very confused

    Thank you
  • PeterCPeterC Registered, Tutor Posts: 150
    Yes, actual hours at standard rate (£21/hr) is £168,000
    Standard hours at standard rate is 23,700 units x 0.333333 hrs/unit x £21/hr = £165,900
    Labour efficiency variance (168,000 - 165,900) = £2,100 adv

    Alternatively, following the guidance at https://drive.google.com/file/d/1Hq8n3ak9uhPV-9IdTYkKQsHPpbiCUMK9/view?usp=sharing is as shown below.

    Actual time taken = 8,000 hrs
    Hours which should be taken (23,700 units x 0.333333 hrs/unit) = 7,900 hrs
    Difference = 100 hrs
    Multiplied by standard rate x £21/hr
    Labour efficiency variance = £2,100 adv

    Personally, I find this easier to remember.
    Melppp
  • jmhjmh Registered Posts: 42
    Thank you Peter.

    I don't know why this is causing me so much trouble

  • PeterCPeterC Registered, Tutor Posts: 150
    You're welcome. Lots of people have trouble with this. Like riding a bicycle, it is not fundamentally difficult but it is very difficult to explain in a book.
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