An automated manufacturing company currently uses a standard absorption costing

Question

An automated manufacturing company currently uses a standard absorption costing system for the electronic products which it manufactures in its plant. The following information for last month has been extracted from the company's records: The following variances have been reported. REQUIRED: Calculate for last month: Actual units produced Actual price per kg of direct material Actual direct hours worked Actual rate per hour of direct labour Prove the direct material cost variance Calculate the following fixed overhead variance: Expenditure variance Volume capacity variance Volume efficiency variance

Explanation / Answer

a. Let the actual output and the price of materials per unit be q and p respectively.

Direct material price variance = ( Standard price per unit - Actual price per unit ) x Actual quantity of materials purchased = ( 6 - p) x 62,000 = -62,000 or Pounds 7 per kg.

Direct material usage variance = (Standard quantity for actual output - Actual quantity used ) x Standard price per unit = ( 13q - 62,000) x 6 = 29,700 or q is 5,150

i. Actual units produced = 5,150 units

ii. Actual price per kg. of direct material = Pounds 7

iii. Actual direct hours worked.

Direct labor efficiency variance = ( Standard hours for actual output - Actual hours worked ) x Standard rate per hour

= ( 5,150 x 5 - Actual hours worked ) x 20 = 11,200 or Actual hours worked = 25,190 hours

iv. Actual rate per hour of direct labor :

Direct labor rate variance = ( Standard rate per hour - Actual rate per hour) x Actual hours worked = ( 20 - r) x 25,190 = -11,313 or Actual rate per hour is Pounds 20.449

v. Direct material cost variance = Standard material cost for actual output - Actual material cost = (13 x 6 x 5,150) - 62,000 x 7 = Pounds 32,300 A

Direct material material cost variance = Direct material price variance + Direct material usage variance = 62,000 A + 29,700 F = 32,300 A

b. i. Fixed overhead expenditure variance = Budgeted fixed overhead - Actual fixed overhead = 5,400 x 5 x 30 - 815,225 = Pounds 5,225 A

ii. Volume capacity variance = (5,150 x 5 - 5,400x 5) x 30 = Pounds 37,500 A

iii. Volume efficiency variance = ( 5,150 x 5 - 25,190) x 30 = Pounds 16,800 F

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