Malindi limited makes a single product, EX. The standard selling price per unit of product EX, together with the standard cost per unit is detailed as below:

Shs

Selling price3 200

Cost:

Direct material [4 kgs @Shs 200]800

Direct labour [3 hrs @ Shs 360] 1 080

Variable overheads300

Fixed overheads4502 630

Standard profit570

The company budgeted to produce and sell 6 000 units of EX in the year to 31 December 2008. Overheads are absorbed on a machine hour basis. It requires 2 machine hours to produce a unit of EX. The budgeted variable overheads amounted to shs 1.8 million, whereas fixed overheads were budgeted atShs 2.7 million.

The company produced and sold 4 800 units of EX. The summarized income statement for the period is given below:

Shs 000

Sales16 800

Costs:

Material [21 600 kgs]4 860

Labour [13 200 hrs]6 336

Variable overheads1 440

Fixed overheads1 93514 571

2 229

There were a total of 9 000 machine hours recorded in the year to 31 December 2008

Required:

a)Compute the variable overhead absorption rate per machine hour [2 marks]

b)Determine the fixed overhead absorption rate per machine hour [2 marks]

c)Determine the budgeted profit and compute the profit variance[3 marks]

d)Analyze the profit variance by its components in order to show:

i)Material price and usage variance [3 marks]

ii)Labour rate and efficiency variance [3 marks]

iii)Variable overheads expenditure and efficiency variances [3 marks]

iv)Fixed overhead expenditure and volume variances [3 marks]

a)Prepare a statement reconciling the actual profits to the budgeted profits [6 marks]

Answer rating: 100% (QA)

a Variable overhead absorption rate per machine hour Budgeted variable overheads Shs 1800000 Budgeted machine hours 9000 Variable overhead absorption rate per machine hour Budgeted variable overheads ... View the full answer