Question 01
Communication Networks (Pvt) Limited (CN) manufactures and sells an electronic
component used in communication equipment. The company operates a standard marginal
costing system and a just-in-time (JIT) purchasing and production system with no
inventory of raw materials or finished goods being held.
Given below is information pertaining to the budgeted and actual results for the year ended
31 March 2015.
Extracts from the budget for the year ended 31 March 2015
lk
Production and sales 10,000 units
g.
Rs.
Standard selling price per unit 1,800
Standard production costs per unit:
in
Direct material; 8 kg at Rs. 108 per kg 864
Direct labour; 1.25 hours at Rs. 180 per hour 225
Variable overheads; 1.25 hours at Rs. 60 per direct labour hour 75
Fixed production overheads
nt 1,700,000
ou
Extracts from the accounting records for the year ended 31 March 2015 (actual
information)
cc
Production and sales 9,000 units
Selling price Rs. 1,840 per unit
Direct material 74,000 kg at Rs. 112 per kg
ea
Direct labour 10,800 hours at Rs. 190 per hour
Variable overheads Rs. 700,000
Fixed production overheads Rs. 1,680,000
lin
Requirement;
Reconcile the budgeted profit with the actual profit showing the variances in as much
on
detail as possible using the standard marginal costing approach.
Question No. 02
Ever-strong (Pvt) Ltd., (EPL) is a cement manufacturing company and currently produces only
50kg cement packs. It operates a standard absorption costing system and monitors the cost of its
production centres, on a monthly basis. EPL has an agreement with a local supplier and buys
materials as and when required. As such, it does not maintain a raw material stock at the factory.
The following production costs have been forecasted for the year 2013, at two different output
levels.
Output level - I Output level - II
1,200,000 packs 1,440,000 packs
Direct materials (Rs. 6 per kg) (Rs. million) 363.60 436.32
Direct labour (Rs. 240 per hour) (Rs. million) 48.00 57.60
Variable overheads (Rs. million) 60.00 72.00
The variable overheads vary with the labour hours and fixed overheads are absorbed to the
product based on standard labour hours. Budgeted fixed overheads are Rs. 144 million per
annum and budgeted output/sale for year 2013 is 1,200,000 packs. Budgeted fixed overheads and
output/sales are evenly distributed throughout the year.
Budgeted selling price per pack is Rs. 730.
The following gross profit has been calculated based on the actual details for the month of
February 2013.
Rs. million
Sales revenue (105,000 packs) 77.700
Less: Cost of Production
Direct materials 34.782
Direct labour (22,000 hours) 5.280
Variable overheads 6.820
Fixed overheads absorbed to production 13.200
60.082
Opening and closing finished goods inventory adjustment (2.565) 57.517
Gross profit 20.183
Fixed overheads amounting to Rs. 1.3 million have been over-absorbed to the production during
February 2013.
Direct Material price variance for the month of February was Rs. 1,122,000 (adverse).
Based on the above information you are required to:
(a) Calculate the number of packs produced during the month of February 2013.
(2 marks)
(b) Calculate the following variances;
(i) Direct Material usage variance
(ii) Labour rate variance
(iii) Labour efficiency variance
(iv) Variable overheads expenditure variance
(v) Variable overheads efficiency variance
(vi) Fixed overheads expenditure variance
(vii) Fixed overheads volume variance
(viii) Sales price variance
(ix) Sales margin volume variance
(12 marks)
