Practice Assessment 2 - Task 2

Zana

Hi,

Can someone please help me with this task?
Any help would be much appreciated! Thank you!

absco14

I'm also struggling with this so any help would be appreciated

CornishPixie

You have been told the standard production for 250 units and you have been given some figures for the actual production of 300 units. You need to find some key figures before you begin.

Standard costs
Materials: standard cost is 36.00 / 3kg is £12 per kg
Labour: standard cost is £22.50 for 1.5 hours so that gives you 22.50 / 1.5 = £15 per hour labour.

Actual costs
Materials: you are told £10 per kg
Labour: you are told that labour cost £7,140 and that each unit takes 1.5 hours to make so

So now you have your key figures.

Materials usage variance - compares the standard usage with what was actually used. so I use the 'should use / did use' formula. So for materials usage we can ask:

Should use (300 units x 3kg) = 900kg
Did use 950kg
50kg Adverse
As it's a usage variance, you need to multiply by the cost per kg to get a monetary figure so 50 x £10 = £500 adverse
(so you've used £500 more material that you should have done)

Labour rate variance - compares what you should be paying per hour (i.e. your standard rate of £15 (as above)) against what you actually paid.

Should cost (300 x £15 x 1.5) = £6,750
Did cost £7,140
£390 Adverse
(so you've paid £390 more for labour than you should have done.

With the variable OH eff variance, you need to look compare the standard with the actual, but as I cannot see in the question that you have been given the actual cost then you cannot compare that to the standard. Therefore, I would put a 0 in the box and show it as no variance.

Zana

Thank you @CornishPixie ! It doesn't seem to match the answers, though... I am sorry I should have attached that as well.

Cheesypeesy

Materials usage variance = (Standard price per kg* standard quantity at actual output) - (Standard price per kg* actual quantity at actual output).

(£12.00 * 900kg) - (£12.00 * 960kg) = £720.00 Adverse

Labour rate variance = (Standard rate per hour * actual hours) - Actual labour cost.

(£15.00 * 420 hours) - £7,140 = £840 Adverse

Variable overhead efficiency variance = (Standard rate per hour * standard hours at actual output) - (Standard rate per hour * actual hours at actual output).

(£7.00 * 450 hours) - (£7.00 * 420) = £210 Favourable.

Fixed production overhead expenditure variance = budgeted FPOH - actual FPOH.
£16,000-£18,200 = £2,200 Adverse.

Absorption rate = Budgeted fixed overheads / budgeted units. £16,000 / 12,800 = £1.25 per unit.

Fixed production overhead volume variance = (Actual units * absorption rate - (Budgeted units * absorption rate)
(14,000 * £1.25) - (12,800 * £1.25) = £1,500 Favourable.

Hope that makes sense.

Cheesypeesy

@CornishPixie For materials usage variance, actual quantity is actually 960 kg (I misread this too at first!). Also, you need to multiply the difference in material usage by the standard price per kg, not the actual price.

Labour rate variance - You calculated the total labour variance. To calculate the labour rate variance, you need to multiply the standard rate per hour by the actual hours worked, then take the actual cost of labour.

Variable overhead efficiency - you only need to compare the actual variable overhead cost when calculating the variable overhead rate variance. We only need the standard and actual hours worked and the standard cost, which we have.

Wiasi

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Zana

Thank you @Cheesypeesy