ACTG 2P12 Chapter Notes - Chapter 23: Activity-Based Costing, Dynamic Planning, Standard Cost Accounting
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1. Anderson Ltd. manufacture gearboxes for use in cars. At thestart of the
year, the management of Anderson Ltd. estimated that its costswould be:
This was based on the following:
| Direct labour Direct material Variable production overhead Fixed production overhead Administration overhead | 8 50 8 12 5 |
80 employees
2000 hours worked by each employee
40 000 gearboxes manufactured in the year as budgetedproduction
£200 unit selling price.
You have recently been employed by the company to establish astandard
costing system. At the end of the year you were able to extractthe
following information:
⢠labour costs £4.40/hour
⢠32 000 units sold
⢠£210/unit selling price
⢠160 000 hours were worked
⢠variable production overheads were £640 000
⢠fixed production overheads were £810 000
⢠administration costs were £350 000
⢠raw material prices were 10% higher than expected
⢠total expenditure on raw material was £3.696 M
⢠there were no opening or closing stocks of raw materials.
(a) You are required to prepare an operating statement for theyear, using
a standard absorption costing system.
Calculations should proceed according to the followingheadings
suffixing âAâ for Adverse and âFâ for Favourable whereappropriate.
Resulting quantities required for the statement are then enteredin the
âOperating Statement for the Yearâ sheet shown on page 6.
(All working must be shown.)
(Budgeted) Costs
Unit cost
£
Direct labour
Direct materials
Variable overhead
Fixed overhead
Admin. overhead
Total
Selling price
Standard profit (per unit)
Budgeted profit
Sales price variance
Sales quantity variance
Cost Variances
Labour Variances
Standard hours =
Standard cost/hour =
Rate variance =
Standard time =
Actual time =
Time variance =
Efficiency variance =
Material Variances
Material price =
Material usage â standard =
â actual =
Material usage variance =
Variable overheads
Standard cost =
Actual cost =
Expenditure variance =
Efficiency variance =
Fixed overheads
Expenditure variance =
Volume variance =
Admin overhead (treat as fixed)
Expenditure variance =
Volume variance =
Operating Statement for the Year
壉000 壉000
Budgeted Profit
Sales variance âprice
â quantity
Cost variances
Labour â rate
â efficiency
Material â price
â usage
Variable â expenditure
â efficiency
Fixed â expenditure
â volume
Admin â expenditure
â volume
Actual Profit
(b) Give reasons/explanations why the variances in (a) abovehave
occurred for the following:
(i) material price
(ii) labour efficiency
(iii) fixed overhead expenditure.
(c) The accountant suggests that a standard marginal costingsystem may
be more suitable. He asks you to outline the strengths and
weaknesses of both systems and recommend the most suitable.
(d) The Board of Anderson Ltd. want to adopt âidealâ standardsbecause
they feel it will encourage harder work. You are asked toproduce a
brief report giving your views.
Problem 1:
Peaceful Corporation manufactures figurines based on thefollowing information.
| Standard costs | $20 | |
| Materials (4 ounces at $5) | $8 | |
| Direct labor (1 hour per unit) | $4 | |
| Variable overhead (based on direct labor hours) | ||
| Fixed overhead budget | $19,000 | |
| Actual results and costs | ||
| Materials purchased | ||
| Units | 9,000 | |
| Cost | $39,600 | |
| Materials used in production | ||
| Finished product units | 2,000 | |
| Raw material (ounces) | 8,200 | |
| Direct labor hours | 2,000 | |
| Direct labor cost | $20,000 | |
| Variable overhead costs | $5,980 | |
| Fixed overhead costs | $19,500 |
Required:
- Prepare a performance report for Peaceful using the following headings.
- Actual Production Costs
- Flexible Budget Costs
- Flexible Budget Variances
- Compute the following variances (show calculations).
- Materials usage variance
- Labor rate variance
- Labor efficiency variance
- Variable overhead spending variance
- Variable overhead efficiency variance
- Fixed overhead budget variance
- Give one possible explanation for each of the six variances computed in part b.
Problem 2:
The following is the current variable costing income statementfor Dolly Corporation.
| Sales (5,000 units) | $100,000 | |
| Variable expenses Cost of goods sold | $35,000 | |
| Selling (10% of sales) | $10,000 | $45,000 |
| Contribution margin | $55,000 | |
| Fixed expenses | ||
| Manufacturing overhead | $24,000 | |
| Administrative | $12,500 | $36,500 |
| Operating income | $18,500 |
Below is the following information on operations for DollyCorporation.
| Beginning inventory (units) | 0 |
| Units produced (units) | 6,000 |
| Manufacturing costs | |
| Direct labor (per unit) | $5.00 |
| Direct materials (per unit) | $2.30 |
| Variable overhead (per unit) | $2.40 |
Required:
Prepare an absorption costing income statement.
Problem 3:
The following information was compiled for two models of cellphones.
| 3G model | 4G model | Average | |
| Budgeted Contribution Margin | $80.00 | $120.00 | $95.25 |
| Budgeted Sales in Units | 28,000 | 18,000 | |
| Actual Sales in Units | 28,600 | 16,500 |
Required:
Calculate the sales mix variance. (Show your calculations.)
