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Seminar 1 Part 2
Standard costing and variance analysis

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These exercises are meant to confirm your understanding of the topic concerned. You are expected
to have gone through the class materials and directed readings thoroughly before attempting these
exercises. As you work through these questions, you may find new terminologies/ideas popping out
occasionally, dont get worried at all, as these are deliberate to trigger further exploration of the
issues concerned. So be adventurous and have fun!
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1. HWT Plc uses a standard costing system and maintains its material stock account at standard
costs. The standard cost card reveals a requirement of 8kg of material at \$0.80/kg. The
Budgeted production for September was 850 units. The actual production was recorded at 870
units. 8200kg of materials were purchased costing \$6888. Material issued to production was
7150kg. Which of the following correctly states the material price and usage variances to be
reported?
a.
b.
c.
d.

Price
\$286
\$286
\$286
\$328

(A)
(A)
(A)
(A)

Usage
\$152 (A)
\$280 (A)
\$294 (A)
\$152 (A)

2. Green Ltd operates a standard costing system for its sole product. The standard cost card shows
that total standard cost is 56, comprises of direct material (4kg @ 2/kg), direct labour (4 hours
@ 4/hour), variable overhead (4 hours @ 3/hour) and fixed overhead (4 hours @ 5/hour).
Fixed overheads are absorbed on the basis of labour hours. Fixed overhead costs are budgeted at
100,000 per annum arising at a constant rate during the year. Activity in Period 3 is budgeted to
be 10% of total activity for the year. Actual production during Period 3 was 500 units, with actual
fixed overhead costs incurred being 9800 and actual hours worked being 1970. The fixed
overhead expenditure variance for Period 3 was:
a.
b.
c.
d.

2200 favourable.
200 favourable.
50 favourable.
200 unfavourable.

## 3. Selamat Company uses standard costing. It has the following records:

Budgeted production (units)
Actual production (units)

RM100,000
20,000
RM110,000
19,500

## The fixed overhead volume variance was:

a.
b.
c.
d.

4. Pelangi Bhd manufactures gift items for distribution in resort outlets in Asia. The company has
compiled the budgets for the month of September 2008. A quick review of the budget shows that
production level is targeted at 10,000 units. Fixed overhead costs are expected to be 10,000.
During September, the record shows that the actual production was 12,000 units. Fixed overhead
costs incurred were 9,010. Calculate all fixed overhead variances for September 2008. Comment
on the variances giving your opinion on their managerial implications.
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Seminar 1 Part 2
Standard costing and variance analysis

5. Hari has established the following with regards to his companys fixed overheads for the past
month:
Actual
Budget
Costs
\$132,400
\$135,000
Units produced 5,000
4,500
Labour hours
9,750
9,000
Overheads are absorbed on a labour hour basis. What was the fixed overhead capacity variance?
a.
b.
c.
d.

\$750 (F)
\$11,250 (F)
\$22,500 (F)
\$11,250 (U)

6. Raya Plc uses standard absorption costing system and bases its absorption upon direct labour
hours. The following relates to September 2008:
Budget
Actual
Labour hours worked
10,000
11,135
Standard hours produces
10,000
10,960
45,000
46,200
The fixed overhead variances to be reported for September 2008 are (round to the nearest 10):
Capacity Variance
Efficiency Variance
a. 5110 (A)
710 (A)
b. 4710 (A)
730 (A)
c. 4710 (F)
740 (A)
d. 5110 (F)
790 (A)
For questions 7 & 8:
Makan-Makan Ltd operates a standard costing system. The following information has been extracted
from the standard cost card for one of its best selling products:
Budget production
Direct material cost 7kg@\$4.1/kg

1,250 units
\$28.70/unit

It has subsequently been noted that the market price of the material was \$4.5/kg during the period.
Actual results for the period show that production was 1,000 units. Direct material purchased and
used was 7,700kg costing \$33,880 in total.
7. The value of the planning variance is
a.
b.
c.
d.

\$1225
\$2800
\$3500
\$4375

unfavourable.
unfavourable.
unfavourable.
unfavourable.

## 8. The value of the material usage variance is

a.
b.
c.
d.

\$2870 unfavourable.
\$3080 unfavourable.
\$3150 unfavourable.
\$3587.50 unfavourable.

9. Contrast planning and operational variances, and briefly explain the usefulness of using a
planning and operational variance system.
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