PM Test 1

PM Test 1
The following scenario relates to questions 1-5 (2 marks each).
Marcus manages production and sales of product MN at Grayshott Co.

Marcus has been asked to attend a meeting with Grayshott Co’s finance
director to explain the results for product MN in the last quarter.
Budgeted and actual results for product MN were as follows:
Budget Actual
Sales volume (units) 40,000 38,000
$’000 $’000
Revenue ($65 per unit) 2,600 2,394
Material (5·2 kg at $4 per kg) (832 ) (836 )
Labour (2 hours at $8 per hour) (640 ) (798 )
Variable overheads (2 hours at $4 per hour) (320 ) (399 )
Fixed overheads (220 ) (220 )
Profit 588 141
There was no opening and closing inventory in the last quarter. Grayshott Co
operates a marginal costing system.
Marcus is angry about having to attend the meeting as he has no involvement

in setting the original budget and he believes that the adverse results are due
to the following circumstances which were beyond his control:
(1) A decision by Grayshott Co’s board to increase wages meant that the
actual labour rate per hour was 25% higher than budgeted.
(2) Due to the closure of a key supplier, Grayshott Co agreed to a contract

with an alternative supplier to pay 6% more per kg than the budgeted
price for material. The actual cost per kg of material was $4·40.
(3) Difficult economic conditions meant that market demand for product MN
was lower by 10%.
At present Grayshott Co does not operate a system of planning and

operational variances and Marcus believes it should do so.
1
Question 1
What was the market share variance for product MN for the last quarter?
A $40,000 Favourable
B $80,800 Adverse
C $29,400 Favourable
D $38,000 Adverse
Question 2
What was the adverse materials price planning variance for product MN
for the last quarter?
A $30,400
B $76,000
C $45,600
D $49,920
Question 3
What was the labour rate operational variance for product MN for the
last quarter?
A $159,600 Favourable
B $159,600 Adverse
C $160,000 Favourable
D $160,000 Adverse
Question 4
Which of the following would explain a labour efficiency planning
variance?
(1) A change in employment legislation requiring staff to take longer rest
periods
(2) Customers demanding higher quality products leading to a change in
product design
(3) The learning effect for labour being estimated incorrectly in the production
budget
A 1 and 2 only
B 2 and 3 only
C 3 only
D 1, 2 and 3
2
Question 5
Which of the following statements regarding the problems of
introducing a system of planning and operational variances is/are true?
(1) Operational managers may argue that variances are due to the original
budget being unrealistic
(2) Operational managers may seek to blame uncontrollable external factors
for the variances
A 1 only
B 2 only
C Both 1 and 2
D Neither 1 nor 2
(Total 10 marks)
Question 6
Kappa Co produces Omega, an animal feed made by mixing and heating

three ingredients: Alpha, Beta and Gamma.
The company uses a standard costing system to monitor its costs.
The standard material cost for 100 kg of Omega is as follows:
Input Kg Cost per kg Cost per 100 kg

of Omega
($) ($)
Alpha 40 2·00 80·00
Beta 60 5·00 300·00
Gamma 20 1·00 20·00
Total 120 400·00
Notes
(1) The mixing and heating process is subject to a standard evaporation loss.
(2) Alpha, Beta and Gamma are agricultural products and their quality and
price varies significantly from year to year. Standard prices are set at the
average market price over the last five years. Kappa Co has a purchasing
manager who is responsible for pricing and supplier contracts.
3
(3) The standard mix is set by the finance department. The last time this was
done was at the product launch which was five years ago. It has not
changed since.
Last month 4,600 kg of Omega was produced, using the following inputs:
Input Kg Cost per kg Total cost

($) ($)
Alpha 2,200 1·80 3,960
Beta 2,500 6·00 15,000
Gamma 920 1·00 920
Total 5,620 19,880
At the end of each month, the production manager receives a standard cost
operating statement from Kappa Co’s performance manager. The statement
contains material price and usage variances, labour rate and efficiency
variances, and overhead expenditure and efficiency variances for the previous
month. No commentary on the variances is given and the production manager
receives no other feedback on the efficiency of the Omega process.
Required:
Calculate the following variances for the last month:
(i) the material usage variance for each ingredient and in total;
(4 marks)
(ii) the total material mix variance;

(3 marks)
(iii) the total material yield variance.

(3 marks)
(Total 10 marks)

PM Test 1

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PM Test 1

The following scenario relates to questions 1-5 (2 marks each).

Marcus manages production and sales of product MN at Grayshott Co.

Budgeted and actual results for product MN were as follows:

Marcus is angry about having to attend the meeting as he has no involvement

(2) Due to the closure of a key supplier, Grayshott Co agreed to a contract

At present Grayshott Co does not operate a system of planning and

Kappa Co produces Omega, an animal feed made by mixing and heating

The company uses a standard costing system to monitor its costs.

The standard material cost for 100 kg of Omega is as follows:

Input Kg Cost per kg Cost per 100 kg

Input Kg Cost per kg Total cost

Calculate the following variances for the last month:

(ii) the total material mix variance;

(iii) the total material yield variance.

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