Matibela is a newly established company in the home spa industry. They produce body lotions, scrubs, fizz balls and bath salts for sale to the general public. Matibela uses a standard absorption costing system. The following information relates to the production of body scrubs: Sea salt and marula oil is used to make the body scrub. These two ingredients can be used to varying extents in the production of the scrub. The limitations are that only between 45% and 60% of the final product may consist of oil. Sea salt is purchased from a supplier at the coast. The budgeted cost of sea salt is $18 per kilogram. The following is the latest price list obtained from the supplier of sea salt: Quantity supplied Cost per kilogram 0 – 100 kg $20 101 – 300 kg $18 301 – 500kg $16 501 kg and above $15 Marula oil is purchased per kilogram. The budgeted cost per kilogram of Marula oil is $40. Due to the drought being experienced in the country, $43 was actually paid per kilogram of Marula oil purchased. Market research shows that 850 tubs of scrub will be sold during the month of December if a price of $45 per tub is charged. No opening or closing stock is budgeted. Based on the budget, one tub should weigh 500 grams. Sales were not as high as expected and only 810 tubs were sold at a price of $45. 830 tubs were produced. In total 301 kilograms of sea salt was purchased. 225 kg salt was used during production. 200 kilograms of oil was purchased and used. One plastic tub is used for every tub of scrub filled. Plastic tubs were expected to cost $1.50, however, another supplier had to be used and the actual cost was $1.70 per tub. 840 tubs were purchased. There was no opening or closing stock of plastic tubs. Matibela Labourers should be paid $100 for every 8 hours worked. After various disputes with trade unions, labourers were actually paid $110 for every 8 hours worked. It should take 15 minutes for one tub to be fully completed. The total actual cost of labour was $2 905 for total production. The budgeted overheads were as follows: Water and electricity $2 000 per month Rental of the workspace $4 000 per month The actual overheads were as follows: Water and electricity $2 225 for December Rental of workspace $4 000 for December Overheads are allocated to the types of products based on the number of products produced. In total, 5 000 units of all types of products were expected to be produced. 4 500 units were actually produced during the month.

 Required: 

a) Calculate the budgeted profit expected to be made by Matibela by using the optimal mix of salt and oil.

b) Calculate all possible variances for Matibela. Assume that Matibela would like to identify material price variances when the material is used. Communication skills – Presentation and layout 

c) Comment on the difference between calculating the material price variance based on quantity used and based on quantity purchased. Communication skills – clarity of expression 

d) List the benefits of using a standard costing system.

Answer rating: 100% (QA)

a Calculate the budgeted profit expected to be made by Matibela by using the optimal mix of salt and oil Total Budgeted Cost Cost of Sea Salt Cost of Marula Oil Cost of Plastic Tub Labour Cost Overhea... View the full answer