Beruflich Dokumente
Kultur Dokumente
UNIT 6
PRESENTATION OUTLINE
1) Attainable Standard
2) Ideal Standard
3) Basic Standard
4) Current Standard
TYPES OF STANDARD CONT’D
Attainable Standard: This is a standard based on
normal operating condition, allowances are made for
material wastage, machine break downs and
management inefficiencies, example process layout,
Coca Cola,
I. Target costing
II. Value analysis
III. Systems analysis
IV. Work- study
V. Operations research
VI. Investment appraisal
VII. Value for Money analysis
VIII. Product life cycle costing
IX. Zero based budgeting
VARIANCE ANALYSIS
Technically,
variance can be calculated for; Material,
Labor, Overheads and Sales (Income Statement Items)
SALES MARGIN VARIANCE
Sales
quantity (SQV): It is the difference between actual
sales volume and budgeted volume multiplied by
budgeted profit margin.
(SQV) = BM (BQ - AQ)
QUESTION 3
Alternatively:
= SP (SQ - AQ)
= 2.5 (7,500 - 7000)
= 1,250F
Alternatively:
Required:
Calculate all relevant Overhead variances both
variable and fixed.
WORKING 1
1) Expenditure variance:
= AH (SR - AR)
= 3,150 (4 - 4.5)
= 1,575 A
2) Efficiency variance:
= SR (SH - AH)
= 4 (3,280 - 3,150)
= 520 F
FIXED OVERHEAD EXPENDITURE VARIANCE
1) Expenditure variance:
= (BFO - AFO)
= ($11,480 - $12,100)
= $620A
= ( FOAR)= SR
= Budgeted Fixed Overhead
Standard Hours Allowed
= ($11,480 / 3,280 hours)
= $ 3.50
FIXED OVERHEAD VOLUME VARIANCE
(2) Volume variance:
= BFO - AFO
= (3280 x 3.5) - (3230 x 3.5)
= 11480 -11305
= 175A
a) Efficiency variance:
= SR (SH - AH)
= 3.5 (3230 - 3,150)
= 280 A
b) Capacity variance:
= SR (BH - AH)
= 3.5 (3,120 - 3,150)
= 105F
STANDARD COSTGH₵
Direct material 15sqm @ GH₵3 45
Direct labor 5 hours @GH₵4 per hour 20
Variable overhead 5hours @GH₵2per hour 10
Fixed overhead 5 hours @ GH₵1 per hour 5
Standard Cost 80
QUESTION 7 CONT’D
Actual Results:
Actual figures for the month of April are as follows;
Sales 1,200 Units at ₵102.
Production 1400 Units.
Direct materials 22,000 sqm at ₵4 per sqm
Direct labor 6,800 hours at ₵5 per hour.
Variable overheads ₵11,000
Fixed Overheads ₵ 6,000
QUESTION 7 CONT’D
REQUIRED:
1. Prepare an operating system reconciling actual
and budgeted profit showing all appropriate
variances.
Actual Profit Statement DR ₵ CR₵
Expenditure variance:
= AH (SR - AR)
= 6,800 (₵2 - ₵1.617)
= ₵2,600F
AR= (Variable Overhead/Direct labor hours Worked)
= (11,000 /6,800)
= 1.6176
Efficiency Variance:
=SR(SH - AH)
= ₵2 (7,000 – 6,800)
= ₵400F
SH = (5hours x 1,400) = 7000
FIXED OVERHEAD VARIANCES
Expenditure variance:
= (BFO - AFO)
= (₵5,000 - ₵6,000)
= ₵1,000A
BFO = GH₵5 x 1,000 = ₵5,000
Volume variance:
= BFO - AFO/(Budgeted Output - Actual Output) x SR
= (₵5 x1,000) - (₵5 x1,400)
=₵2,000F
FIXED OVERHEAD VARIANCES
Efficiency variance:
= SR(SH- AH)
= ₵1(7,000 - 6,800)
= ₵200F
SH= 5hours x 1,400 = 7000
Capacity variance:
= SR(BH - AH)
= ₵1(5,000 – 6,800)
=₵1,800F
BH = 5hours x 1000 = 5000
Reconciliation of Budgeted to Actual ₵ FA ₵ AD GH₵
Profit
Budgeted contribution (20 x1,000 Units) 20,000
GH₵ GH₵
Budgeted profit 200,000
Add: Favorable variances:
Sales price 250,000
Sales volume variance 50,000
Fixed overhead expenditure variance 20,000
Fixed overhead capacity variance 50,000
Fixed overhead efficiency variance 50,000
Variable overhead efficiency variance 25,000
Labour efficiency variance 50,000
Material price variance 320,000 815,000
QUESTION 8 CONT’D
1015,000
Less: Adverse Variances:
Material usage variance 700,000
Labour rate variance 90,000
Variable overhead expenditure variance 55,000 (845,000)
Actual profit 170,000
Required:
Calculate the sales variances
The total material variance
The total wage variances
Total manufacturing overhead variances
Reconcile budgeted profit to actual profit
SOLUTION
MPV + (-)MQV
22,250 A + 66,250 A=88,500 A
Sales mix:
Q - 20%
R - 30%
S - 50%
Based on the following budgeted sales for the year
QUESTION 10 CONT’D
Product Units Selling Standard Profit
Price ₵ Cost₵ Margin ₵
Q 200 20 10 10
R 300 15 9 6
S 500 10 6 4
Total 1,000
SQ X SP SQ X SP RSQ X RSP
Usage Usage Usage
AQ X SP RSQ X SP AQ X RSP
Price Price Price
AQ X AP RSQ X RSP AQ X AP
QUESTION 11- ILLUSTRATIVE QUESTION
Require:
1) Calculate the traditional variance
2) Analyze the variance into planning and operational
3) Comment on your result obtained in 2) above.
SOLUTION
(1)TRADITIONAL VARIANCE
SQ X SP
10kg X 11,000 X $5.00 550,000
5,500 F = USAGE
AQ X SP
108,900kg X $5.00 544,500
27,225 F = PRICE
AQ X AP
108,900kg X $4.75 517,275
TMCV 32,725 F = TMCV
SOLUTION
(2)PLANNING VARIANCE
SQ X SP
10kg X 11,000 X $5.00 550,000
27,500F = Usage
RSQ X SP
9.5KG X 11,000 X $5.00 522,500
15,675F = Price
RSQ X RSP
9.5kg X 11,000X $4.85 506,825
TMCV 43,175
SOLUTION
AQ X AP 10,890 F = Price
108,900 X$4.75 517,275
TMCV 10,450 A
SOLUTION
Material Price Variance:
= AQ (RSP - AP)
= 108,900kg ($4.85 – $4.75)
= $10,890F
Summary of variances:
Required:
Analyze the material variances for both products, utilizing
the following :
Required :
1) Calculate the price , mix and yield variances.
2) Describe briefly two major reasons for material
variances.
SOLUTION
MaterialUsage Variance:
Material wastage, spillage and pilfering,
Change in the demand for material.
MaterialPrice Variance:
Change in the price of the material
Change in the economic condition, example inflation
QUESTION 14 - ICAG EXAMS QUESTION MAY
2004 ADAPTED
Advantages of LCT
I. Can be used for pricing decisions
II. Setting of standards for cost centres
III. Planning / budgeting for manpower needs
IV. Used for performance evaluation
V. Provides basis for learning and motivation of labor
VI. Provides basis for strategy evaluation
VII. Can be apply as a cost control tool
APPLICATION OF LCT CONT’D
Formulae Y = 𝑎𝑋 𝑏
Where :
APPLICATION OF LCT CONT’D
Required:
As the management accountant, you are to advise
management, using the knowledge gained in the theory of
learning curve whether, the assumption stated in the
question regarding the relationship between units produced
and labor hours are true.
SOLUTION
UNITS AVERAGE
HRS PER
UNIT
1 Units take (1 x 10 hours ) = 10
Comment
From the above calculation, the average hours per unit
falls to 80% of its previous levels each time cumulative
output doubles.
(3) Time taken to produce the 14th to the 15th car only:
−0.5146
15 units (20 hours x 15 ) x 15 = 74.46 hr.
−0.5146
13 units ( 20 hours x 13 ) x 13 = (69.46 ) hr.
Total time for the 14th and 15th unit = 5.00 hr.
SOLUTION CONT’D
−0.5146
200 units (20 hours x 200 ) x 200 = 261.8 hr.
−0.5146
199 units ( 20 hours x 199 ) x 199 = (261.2) hr.
Total time for the 200 unit = 0. 6hr.
SOLUTION CONT’D
(c) Therefore, 200 units +1,897 units = 2,097 cars built in the
first 2 months