PEV June 2006 Section 1

Hi

this is to show section 1 of monday's PEV exam, with my answers

Section 1:


Data:

Brake Ltd is making a standard costing for its product as follows. Its fixed overhead costs are absorbed by direct labour hours


Direct material: 2kg @ £ 5.00 = £ 10.00
Direct labour: 0.5 hours @ £ 7.00 = £ 3.50
Fixed Overhead: 0.5 hours @ £ 48.00 @ £ 24.00

Total absorption cost per unit: £ 37.50

These data are also given:
o Budgeted production is 10000 units.
o Actual production was 11500 units.
o 22500 kg of direct material was purchased and used. It cost £ 123750.
o 6000 direct labour hours were worked costing £ 6 per hour.
o Actual overheads incurred was £ 260000.

Task 1.1:



a) Calculate:

i) Budgeted overhead.
ii) Actual price per kg of direct materials.
iii) Standard usage of actual production.
iv) Standard labour hours of actual production.

b) Calculate:

i) Direct material price variance.
ii) Direct material usage variance.
iii) Direct labour rate variance.
iv) Direct labour efficiency variance.
v) Fixed overheads expenditure variance.
vi) Fixed overheads capacity variance.
vii) Fixed overheads efficiency variance.

c) Reconcile standard cost of actual production with actual cost of actual production using absorption methos.


d) Redraft the statement you have made in Task 1.1 c) using marginal costing method.

e) What caused the different between the two?





Task 1.2:

Additional Data:

There was sales growth of 4% in the demand of Brake Ltd products. Managing Director gives you the following actual sales volumes for each quarter from February 2005 to February 2006 and telling you that there has been fall in the demand of sale by 13%:

Quarter 1: 22000
Quarter 2: 19400
Quarter 3: 21800
Quarter 4: 19200

Seasonal variation for each Quarter was:
Quarter 1: 2000
Quarter 2: -1000
Quarter 3: 1000
Quarter 4: -2000




a) Calculate seasonally adjusted trend of sales volumes

Quarter 1
Quarter 2
Quarter 3
Quarter 4


b) Calculate the sales growth percentage from Quarter 1 to Quarter 4.


c) Show that what Managing Director said about the fall in demand is incorrect, illustrating what you have answered in Task 1.2 b).




My Answers:

Task 1.1:


a)
v) £ 24000.
vi) £ 5.50.
vii) 23000 kg.
viii) 5750 hours.

b)

i) £ 11250 (A).
ii) £ 2500 (F).
iii) £ 6000 (F).
iv) £ 1750 (A)
v) £ 20000 (A)
vi) £ 48000 (F)
vii) £ 12000 (A)


c)

Standard cost for the actual production £ 431250
Add: 11250
Less: 2500
Less: 6000
Add: 1750
Add: 20000
Less: 48000
Add 12000

Total variances: (11500)

Actual cost for actual production: £ 419750

d)

Standard cost for the actual production £ 395250
Add: 11250
Less: 2500
Less: 6000
Add: 1750
Add: 20000

Total variances: 24500

Actual cost for actual production: £ 419750



e) The difference is £ 36000, which represents the fixed overhead volume variance, which is not dealt with when using marginal costing method because fixed overheads are period cost and it is not absorbed, therefore only fixed overhead expenditure variance is relevant here.



Task 1.2:

a) Quarter 1: 20000
Quarter 2: 20400
Quarter 3: 20800
Quarter 4: 21200

b) (21200-20000)/20000 = 4%