Question 1 (35 marks):

Fabulous Ltd makes a single product, the Geo. It operates a standard absorption costing system. The budget for 2018 shows sales of 500,000 Geos at 0.25 giving a profit of 12,500.

Standard absorption cost for one unit of Geo:

item

Details

cost

Materials

1 kg plastic @ 0.05/kg

0.050

Direct Labour

15 minutes @ 0.50/hr

0.125

Variable Overheads

15 minutes @ 0.10/hr

0.025

Fixed Overheads

15 minutes @ 0.10/hr

0.025

Standard cost of production

0.225

Actual results for 2018:

Number of Geos actually made = 452,000 which were sold at 0.30 each.

item

Details

cost

Materials

480,000 kg

18,000

Direct Labour

100,000* hrs @ 0.55/hr

55,000

Variable Overheads

12,000

Fixed Overheads

12,000

* Due to a power cut, only 95,000 hours were actually worked.

Requirements for question 1:

Assuming there were no opening or closing stocks, calculate the following variances:

a)Direct material price and quantity variances (6 marks).

b)Direct labour rate, efficiency and idle time variances (8 marks).

c)Variable overhead efficiency and expenditure variances (6 marks).

d)Fixed overhead expenditure, capacity, efficiency and volume variances

(9 marks).

e)Sales price and volume variances (6 marks).