The document provides solutions to self-assessment questions from a learning unit. It includes answers to multiple choice and numerical questions about standard costing variances. The questions cover topics like material, labour, overhead and sales price variances.
The document provides solutions to self-assessment questions from a learning unit. It includes answers to multiple choice and numerical questions about standard costing variances. The questions cover topics like material, labour, overhead and sales price variances.
The document provides solutions to self-assessment questions from a learning unit. It includes answers to multiple choice and numerical questions about standard costing variances. The questions cover topics like material, labour, overhead and sales price variances.
The document provides solutions to self-assessment questions from a learning unit. It includes answers to multiple choice and numerical questions about standard costing variances. The questions cover topics like material, labour, overhead and sales price variances.
1.1 T 1.2 T 1.3 T 1.4 F. Using standard costs may make employees more cost conscious and they may seek alternative, improved methods of completing their tasks. 1.5 F. The standards cost card contains the production standards for one unit of product. the budget is the financial plan of all the functions of the organisation. 1.6 F. Specifications for materials are compiled on a bill of materials. An operations flow document shows all processes necessary to manufacture one unit of a product.
SOLUTION TO ACTIVITY 16.2
QUESTION 1
1.1 F. If the actual price is more than the standard price, the variance is unfavourable because more money was spent than intended. 1.2 F. The material quantity variance compares the actual quantity to the standard quantity allowed. If the actual quantity is less, there is a favourable variance. Reasons for the variance are investigated after variances have been determined. 1.3 T 1.4 F. Variances are not recorded in the general ledger.
When two R-values are compared you get a price/rate variance; when two quantities are compared, you get a quantity/efficiency variance. Actual R702 000/1 800 = R390 Budget R600 000/1 600 = R375 = R15 × 1 800 = R27 000 F Actual R220 000/10 000 = R22 per kg Standard R140/7 = R20 per kg = R2 x 10 000 kg = R20 000 U Flexed budget 1 800 units × 7kg = 12 600 kg Actual given = 10 000 kg 12 600 kg – 10 000 kg = 2 600 kg SP: R140/7 = R20 Quantity variance Quantity variance: 2 600 × R20 R52 000 F
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Solutions to self-assessment questions
Price variance see 1.5 R20 000 U
Total quantity and price variance R32 000 F Actual 1 800 × R115 R207 000 Flexed 1 800 × R100 R180 000 R27 000 U Direct labour rate variance = (SR – AR) × AH Thus, (6,30 - AR) × 20 000 = 8 400 6,30 – AR = 8 400 / 20 000 -AR = (0,42 – 6,30) -1(-AR) = -1(-5,88) AR = R5,88 Actual direct labour cost = actual direct labour hours × direct labour rate per hour = 20 000 × R5,88 = R117 600
QUESTION 3 - Rally Omyo!
a. Total variance plastic
Standard cost for plastic per car R28 800 × 21 cars = R604 800 minus R618 450 actual spending = R13 650 total unfavourable variance.
b. Quantity variance plastic
Standard input 320 kg × R90 per kg Actual input 310 kg × R95 per kg (SQ – AQ) × SP 10 kg × R90 × 21 cars R18 900 favourable (actual kg used is less)
OR
Total variance per a. R13 650 U
Price variance given R32 550 U Quantity variance = R18 900 F
c. Price variance metal
Price variance = (SP – AP) × AQ (R158 – R154) × (1 150 kg per car × 21 cars) R4 × 24 150 = R96 600 favourable (actual purchase price is less)
Rate variance R8 178 F Efficiency variance R9 900 U Total variance R1 722 U
e. Reasons for variances
Unfavourable material price variance: • higher than expected rate of inflation • limited availability of material – available only at a premium price • market conditions – higher than expected increase in prices from supplier • better quality material purchased at a higher price • faulty standards Unfavourable material quantity variance • higher spoilage/losses than expected (lower quality materials used) • poorly trained workers, hence material wastage • poor control/supervision resulting in theft, misuse etc. • standards that are inappropriate or too stringent Favourable labour rate variance • employment of unskilled labour (cheaper than skilled) • favourable negotiations with labour unions resulting in lower-than-expected increases • faulty standards (rate incorrect – too high) Unfavourable labour efficiency variances • new labour used (inexperienced) • poor control/supervision • strikes • poor quality material (more difficult to work with) • standards that are inappropriate or too stringent Favourable variable overhead spending variance • favourable negotiations with suppliers • cheaper suppliers used • faulty standards (standards based on too high prices)
Since overheads are allocated based on metres used, the same reasons would apply as those for the unfavourable material quantity variance.
f. Main purposes of a standard costing system
• To set a standard against which actual costs can be measured and controlled. • To pinpoint responsibility for variances. • To assist with initial organisational planning (i.e., compiling the budget) and follow-up (corrective action in order to address significant unfavourable variances).
c. Reconcile the actual profit with the budgeted profit.
Total material price variance = 1 250F – 125U = R1 125 F
Total material quantity variance = 6 400U – 135F + 30U = R6 295 U Fixed overhead expenses variance = budgeted – actual expenses = R1 240 – R1 350 = R110 U
R R Actual net profit 13 053 Budgeted net profit 15 000 Selling price variance F (3 528) Selling price variance F 3 528 Material price variance F (1 125) Material price variance F 1 125 Material quantity variance U 6 295 Material quantity variance U (6 295) Labour rate variance F (135) Labour rate variance F 135 Labour efficiency variance U 330 Labour efficiency variance U (330) Fixed overhead expenses variance U 110 Fixed overhead expenses variance U (110) Budgeted net profit 15 000 Actual net profit 13 053
d. Possible reasons for the labour efficiency variance
• appointment of unschooled labour • poor supervision • poor quality of material – rework required • strikes • faulty standards – standards too stringent
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Solutions to self-assessment questions
QUESTION 6 - Mohale
Date: 15 July 2021
To: Mohale Ltd Management From: A. Student Re: Standard costing variances and Ethical and Statutory concerns regarding Mohale Ltd
(a) Material quantity variance
(SQ – AQ) × SP ^ [(0,3 × 10 600) – (0,5 × 10 600)] × R400 = (3 180 – 5 300) × R400 = (R848 000), unfavourable because actual cost was higher than standard cost
(SP – AP) × AQ ^ = (R5 000 × 10 600) - R58 300 000 = 53 000 000 – 58 300 000 = (R5 300 000) thus favourable, because actual income was higher than standard income
2 List ("What") Discuss ("Why")
• The CFO is related to the CEO of the The CFO is conflicted and biased as she approved supplier is related to the CEO of the approved supplier. Expanding the company’s material used to an unfamiliar and new supplier without being properly scrutinised contravene the principle of professional competence. • The supply of material contract was solely The contract is not scrutinised by other approved by the CFO executives who are not related to CEO of the supplier • Illegal use of Goodle maps/Breach of COO installed the Goodle maps without contract securing the permission • Illegal use of personal information The company is expected to comply with all applicable laws; according to Personal Information Protection Act (POPIA), the company should protect information at its disposal. • Non-competitive dealings The CFO is not honest as she knowingly approved a contract at an inflated
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Solutions to self-assessment questions
QUESTION 7 - Setulo (Pty) Ltd
Calculations:
Actual quantity material used R295 800/R58 = 5 100 kg Question 1 (a)
Standard quantity material 2 000 units × (R150/R60) = 5 000 kg Question 1 (b) Actual selling price R1 300 000/2 000 units = R650 Question 1 (c) Standard labour rate R105/1,5 = R70 Question 1 (d) Actual hours R223 200/R72 = 3 100 Question 1 (d) Standard hours 1,5 hours × 2 000 units = 3 000 hours Question 1 (e)
1 (a) Material purchase price variance
(SP – AP) × AQ (R60 ^ – R58 ^) x 5 100kg R10 200 (f)
(AR – SR) × AH (R72 ^ – R70) x 3 100 hours R6 200 (u) ^
1 (e) Labour efficiency variance
(AH – SH) × SR (3 100 ^ – 3 000) × R70 R7 000 (u)
2. Reasons for labour rate variance and labour efficiency variance
Labour rate (any one)
• Wage negotiations concluded at rates that differ from those budgeted for when the standard rate was determined. • The organisation employs different grades of workers.
Labour efficiency (any two)
• Use of sub-standard material • Unskilled labour personnel • Change in production methods/technology (workers not yet familiar with new technique/process)
3. Benefits of standard costing
• It helps with planning. The standard of individual cost and revenue can be used to compile the budget. • Actual performance can be controlled by measuring it against the standard. Any variances can then be investigated, and corrective action taken. • Standards can be used to value inventories when the standard costs are not significantly different from actual costs.
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Solutions to self-assessment questions
SOLUTION TO ACTIVITY 16.3
QUESTION 1
1.1 F. A variable is favourable if it will increase profit and unfavourable if it will decrease profit. If the actual price of material is higher than the standard, it means that the actual cost would be higher than budgeted and the actual profit would be lower than budgeted. 1.2 F. See explanation under a. 1.3 T 1.4 T, because efficiency variances are based on hours worked. 1.5 T 1.6 F. Internal business processes will dictate customer satisfaction rather than the other way round. 1.7 T
