MZUMBE UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

STANDARD COSTINGAND VARIANCES ANALYSIS REVIEW QUESTIONS
ACC 222: COST AND MANAGEMENT ACCOUNTING II
DISCUSSION QUESTION
1. Explain why standard costing systems are adopted.
2. The budget variance for variable production costs is broken down into quantity and
price variances. Explain why the quantity variance is more useful for control purposes
than the price variance.
3. Distinguish between ideal and practical standards.
4. The labor rate variance is never controllable. Do you agree or disagree?Why?
5. Suggest some possible causes of an unfavorable labor efficiency variance.
6. If the materials price variance is favorable but the materials quantity variance is
unfavorable, what might this indicate?

TUTORIAL QUESTIONS

QUESTION ONE
A company produces a product X and operates a system of standard costing. Details of
information for the month of July, 2002 are as under:
Standard output from each ton of material : 50 units
Standard price per ton : TZS150,000.
Actual usage : 100 tons
Actual price per ton : TZS200,000
Actual output : 6000 units
Required:
Calculate material variances.

QUESTION TWO
Mazimbu Timber Company manufactures a number of consumer items for general household
use. One of these products is named royal dressing table, requires an expensive hardwood.
During a recent month, the company manufactured 4,000 of royal dressing table using 11,000
board feet of hardwood. The hardwood cost the company TZS. 18,700,000.
The company’s standards for one royal dressing table are 2.5 board feet of hardwood, at a cost
of TZS1800 per board foot.
Required:
a) According to the standards, what cost for wood should have been incurred to make
4,000 Royal Dressing table? How much greater or less is this than the cost that was
incurred?
b) Break down the difference into a materials price variance and a materials quantity
variance.

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QUESTION THREE
Dream Hutt Limited, prepares and deliver meals for a number their VIP customers. One of the
company’s products is Pizza with white recipe sauce, fresh baby corn, and sandwich. During
the most recent week, the company prepared 6,000 of these meals using 1,150 direct labor-
hours. The company paid these direct labor workers a total
of TZS. 11,500,000 for this work which was equivalent to TZS. 10,000 per hour. According to
the standard cost card for this meal, it should require 0.20 direct labor - hours at a cost of TZS.
9,500 per hour.
Required:
a) According to the standards, what direct labor cost should have been incurred to prepare
6,000 meals?How much does this differ from the actual direct labor cost?
b) Break down the difference into a labor rate variance and a labor efficiency variance

QUESTION FOUR
Morasa Plc delivered goods ordered by customer online to their physical address locally and
oversee. The company maintains warehouses that stock items carried by its online clients.
When a client receives an order from a customer, the order is forwarded to Morasa Plc, which
pulls the item from storage, packs it, and ships it to the customer. The company uses a
predetermined variable overhead rate based on direct labor-hours.
In January 140,000 items were shipped to customers using 5,800 direct labor hours. The
company incurred a total of TZS 15,950,000 in variable overhead costs. According to the
company’s standards, 0.04 direct labor -hours are required to fulfill an order for one item and
the variable overhead rate is TZS 2800 per direct labor- hour.
Required:
i) According to the standards, what variable overhead cost should have been incurred
to fill the orders for the 140,000 items? How much does this differ from the actual
variable overhead cost?
ii) Break down the difference into a variable overhead rate variance and a variable
overhead efficiency variance.

QUESTION FIVE
Hollowell Audio, Inc., manufactures military-specification compact discs. The company
uses standards to control its costs. The labor standards that have been set for one disc are as
follows:

Standard Hours Standard Rate per Hour Standard cost

6 Minutes 24.00 2.40
During July, 2,125 hours of direct labor time were required to make 20,000 discs. The direct
labor cost totaled $49,300 for the month.
Required:
According to the standards, what direct labor cost should have been incurred to make the
20,000 discs? By how much does this differ from the cost that was incurred?

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 i) Compute labor rate variance and a labor efficiency variance.
ii) The budgeted variable manufacturing overhead rate is $16.00 per direct labor -hour.
During July, the company incurred $39,100 in variable manufacturing overhead
cost.
iii) Compute the variable overhead rate and efficiency variances for the month.

QUESTION SIX
The Worldwide Credit Card, Inc., uses standards to control the labor time involved in opening
mail from card holders and recording the enclosed remittances. Incoming mail is gathered into
batches, and a standard time is set for opening and recording each batch. The labor standards
relating to one batch are as follows:
Standard Hours Standard Rate per Hour Standard cost
Per batch 1.25 $12 $15
The record showing the time spent last week in opening batches of mail has been misplaced.
However, the batch supervisor recalls that 168 batches were received and opened during the
week, and the controller recalls the following variance data relating to these batches:
Total labor spending variance $330U
Labor rate variance $150F

Required:
i) Determine the number of actual labor-hours spent opening batches during the week.
ii) Determine the actual hourly rate paid to employees for opening batches last week

QUESTION SEVEN
Kibwasi Ltd. has just introduced a new standard marginal costing system to assist in the
planning and control of the production activities for the single product, which the company
manufactures – 'Tekie'. The system became operational on 1 March 2021. The Management
Accountant has consulted with the Senior Engineer, and they have agreed on the following
standard specifications to manufacture one unit of the product ‘Tekie’:
Direct materials: 4 kg @ TZS 1.75 per kg Direct labor: 2 hours @ TZS 10 per hour Variable
overhead: 2 hours @ TZS 8.25 per hour
According to the Marketing Director, Kibwasi Ltd. operates in an industry where the budgeted
selling price is normally calculated to achieve a markup of 30% on cost. The budgeted level of
production and sales activity has been agreed with both production managers and sales staff at
24,000 units per month.
The actual results for the month of March 2021 are as follows:
• Sales: 22,000 units yielding total revenue of TZS 1,276,000.
• Production: 23,000 units.
• Direct Materials: 90,000 kg @ TZS 162,000.
• Direct labor: 48,000 hours @ TZS 576,000
• Variable overhead: TZS 350,000
Required: Calculate the following from the above data:

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 i) Materials variances
ii) Direct labor variances
iii) Overheads variances

QUESTION EIGHT
Emefa Ltd. bakes cakes by mixing three ingredients namely Flour, Sugar, and Butter in the
standard proportions [Link] respectively. However, the production process does not always mix
the ingredients in these proportions, but the cake can be sold if the mixture is within certain
limits.
The new production manager (a celebrity chef) has argued that the business should use only
organic ingredients in its cake production. Organic ingredients are more expensive but should
produce a product with an improved flavor and provide health benefits for the customers. It
was hoped that this would stimulate demand and enable an immediate price increase for the
cakes.
The standard prices for the ingredients are:
• Flour: TZS 2.50 per kilo
• Sugar: TZS 3.00 per kilo
• Butter: TZS 2.00 per kilo
There is a 5% normal loss in the production process. The budget for production and sales in
the period was 50,000 cakes. Actual production and sale of cake mixture was 228,000 kg.
During the period, the inputs were as follows:
• Flour: 96,000 kg - TZS 249,600
• Sugar: 72,000 kg - TZS 216,000
• Butter: 50,000 kg - TZS 105,000
Required: Calculate the following variances:
• Material Mix Variance
• Material yield variance
• Material usage variance

QUESTION NINE
Baba Herode Ltd (BHL) is a manufacturer of jute bag. The following data was provided
by the Cost Accountant who wants to analyze the various variances for decision making:
Details
Normal capacity 200 machine hours for 20 days in a
Budgeted monthly fixed overheads TZS300,000
month
Standard time to manufacture a unit of product 4 hours

Actual data for the month of April 2023

Details
Days and hours worked 900 machine hours for 19 days
Output 4,275 units
Actual fixed overheads incurred TZS290,0000

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Required:
Calculate the following variances:
i) Efficiency
ii) Capacity
iii) Expenditure
iv) Volume
v) Total fixed overhead

QUESTION TEN
Mtoe Enterprises (ME) produces a single product, F-85, using raw materials X and Y. The
breakdown of the standard cost per ton (1,000 kg) of F-85 is as follows:

Item Cost Per Unit Total Cost

Raw material – X TZS. 50 per kg TZS.40,000
Raw material – Y TZS.80 per kg TZS.20,000
Direct labour TZS.300 per hour TZS.30,000

Factory overheads (40% variable) 150% of direct labour

The details of ZE’s operations for the month of August 2023 are as follows:
• 30 tons of F-85 were produced, compared to a budgeted production of 33 tons.
• The opening inventory of X was 4,000 kg at TZS.50 per kg.
• The opening inventory of Y was 1,000 kg at TZS.80 per kg.
• 23,000 kg of X and 8,000 kg of Y were purchased at TZS.52 and TZS.79 per kg,
respectively.
• The closing inventory of X and Y was 2,000 kg and 1,800 kg, respectively.
• 3,200 direct labour hours were used, and the total direct labour cost amounted to
TZS.920,000.
• Due to inflation, the actual factory overheads exceeded the budget by 5%

Compute the following:

i) Material price and yield variances
ii) Labour rate and efficiency variances
iii) Variable overhead expenditure and efficiency variances
iv) Fixed overhead expenditure variance

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QUESTION ELEVEN
Morasa Limited (ML) is engaged in the production of a single product, Lunar-1, and uses a
standard absorption costing system. ML has a total production capacity of 6,250 units per
month, whereas it operates at a normal capacity of 80%. The following information pertains to
the month of August 2022:
Standard cost card per unit:
Item Cost Per Unit Total Cost
Direct material 8 kg at TZS.30 per kg TZS.240
Direct labour 6 hours at TZS.25 per hour TZS.150
Overheads* TZS.20 per labour hour TZS.120
(Including budgeted fixed overheads of TZS.200,000)
Sales and production data:
Item Value
Budgeted selling price per unit TZS.700
Budgeted sales 4,000 units
Actual sales 5,200 units
Actual production 5,400 units

Additional information:
(i) There was no inventory at the beginning of the month.
(ii) 50,000 kg of direct material was purchased in bulk in order to avail of a discount of
TZS.150,000.
(iii) Actual material loss was 10% as against the budgeted loss of 6%.
(iv) Workers’ wages were increased by 10% effective from 1 August 2022 due to
prevailing high inflation. This increased workers’ efficiency by 5% as compared to
the budget.
(v) Actual overheads (both fixed and variable) amounted to TZS.720,000. Fixed
overheads were overabsorbed by TZS.30,000.

Required:
a) Compute the budgeted profit for the month of August 2022 using standard marginal
costing.
b) Compute the following variances for the month of August 2022:
(i) Sales volume variance
(ii) Material price and usage variances
(iii) Labour rate and efficiency variances
(iv) Fixed overhead expenditure variance
(v) Variable overhead expenditure and efficiency variances

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QUESTION TWELVE
Kishimbe manufactures office furniture and specializes in producing desks. This year, due to
significant customer demand, the company commenced production of a new product, a
standing desk. Based on an innovative design, the standing desk is constructed from sustainable
beech wood only, without the need for screws or fastenings of any kind. Budgeted and actual
information for the standing desks for the month of May is shown below.
Item Budgeted Actual
Sales/production in units 3,000 2,750
Total sales revenue TZS 840,000 TZS 811,250
Total materials (square meters) 12,750 sq. mtrs 12,375 sq. mtrs
Materials (beech wood) TZS 153,000 TZS 141,075
Total direct labour hours 3,750 hours 3,300 hours
Total direct labour cost TZS 60,000 TZS 56,100
Variable production overhead cost TZS 20,625 TZS 19,800
Fixed production overhead cost TZS 129,375 TZS 119,790
Notes:
1. The company operates a standard absorption costing system.
2. Both variable production overhead and fixed production overhead costs are based on
direct labor hours.

Required:
(a) Prepare the standard cost card for ONE standing desk.
(b) Prepare an operating statement showing the static budget, flexed budget, and actual
results for the month.
(c) Calculate relevant variances in as much detail as the information above permits.
(d) For each of the direct labor variances calculated at (c) above, outline ONE reason to
explain why it has occurred.