December 2006 PEV
System
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Help.
I have read and re-read this data at the start of the December exam.
You are employed as an Accounting Technician at BeThere Airlines, a company that
operates flights across Europe. The company has several divisions including a catering
division operating from Manchester. The catering division produces meals daily for the
flights. Currently all meals produced are used only on BeThere flights.
The company operates an integrated standard cost system in which:
• purchases of materials are recorded at standard cost
• direct material costs and direct labour costs are variable
• production overheads are fixed and absorbed using direct labour hours.
I was so sure that this meant that the overheads absorbed would be
standard hours per unit x BOAR x units produced
But the answer says this is wrong and that I should have absorbed the BOAR x the actual labour hours worked.
I think I am right and cannot see why the actual hours are used in a standard costing system.
My teacher said that I should use standard hours produced (standard hours per unit x units produced) x BOAR in a standard costing system, and only absorb using actual hours worked in a non-standard costing system.
Another question.
If I'm wrong, why does the answer use the overhead absorbed using standard hours to work out the overhead volume variance and the efficiency variance?
This is bugging me as I was feeling quite confident until I did this paper.
I have read and re-read this data at the start of the December exam.
You are employed as an Accounting Technician at BeThere Airlines, a company that
operates flights across Europe. The company has several divisions including a catering
division operating from Manchester. The catering division produces meals daily for the
flights. Currently all meals produced are used only on BeThere flights.
The company operates an integrated standard cost system in which:
• purchases of materials are recorded at standard cost
• direct material costs and direct labour costs are variable
• production overheads are fixed and absorbed using direct labour hours.
I was so sure that this meant that the overheads absorbed would be
standard hours per unit x BOAR x units produced
But the answer says this is wrong and that I should have absorbed the BOAR x the actual labour hours worked.
I think I am right and cannot see why the actual hours are used in a standard costing system.
My teacher said that I should use standard hours produced (standard hours per unit x units produced) x BOAR in a standard costing system, and only absorb using actual hours worked in a non-standard costing system.
Another question.
If I'm wrong, why does the answer use the overhead absorbed using standard hours to work out the overhead volume variance and the efficiency variance?
This is bugging me as I was feeling quite confident until I did this paper.
0
Comments
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Re:December 2006 PEV
Tinkerbell
I agree with you.
The examiner's answer to the variance questions agree entirely with mine.
BUT
I think he has made a mistake on task 1.1 a vi in both the answer and the examiner feedback commentary.
If anyone has an early copy of my answer you may see I made the same mistake, but I reviwewed mine in April when someone queried my answer, and when I worked it out again, I recognised the error.
Tinkerbell_A24
I agree with your teacher.My teacher said that I should use standard hours produced (standard hours per unit x units produced) x BOAR in a standard costing system, and only absorb using actual hours worked in a non-standard costing system.
sandy.hood@chichester.ac.uk0